THE 

ARTHUR  YOUNG 

ACCOUNTING 

COLLECTION 


Graduate  School  of 
Business  Administration 

Library  of  the 

University  of  California 

Los  Angeles 


book  is  DUE  on  the  last  date  st' 


SOUTHERN    BRANCH 

UNIVERSITY  OF  CALIFORNIA 
LIBRARY 

LOS  ANGELES.  CALIF. 


Library 

Graduate  School  of  Business  Adminlstratio. 

University  of  California 

loa  Jlngeles  24,  California 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/costaccountingfoOOcoleiala 


COST  ACCOUNTING 

FOR   INSTITUTIONS 


BY 

WILLIAM  MORSE  COLE,  A.M. 

PROFESSOR   OF  ACCOUNTING   IN  HARVARD   UNIVERSITY 


{Second  Printing) 


NEW  YORK 

THE  RONALD  PRESS  COMPANY 

1920 

4005"^ 


-■*    * 


COPYRIGHT,  1913, 

BY 

THE  RONALD  PRESS  COMPANY 


f 


Library 

X5C6 


'i  INTRODUCTION 

oi        The  first  fact  to  realize  with  regard  to  a  plan  of  cost 
accounting  is  that  no  a  priori  determination  of  exact  meth- 
ods can  be  made  for  any  establishment.     No  two  establish- 
.  ments  are  alike  in  all  details,  and  a  perfect  plan  for  cost 
^  accounting  in  one  will  fail  of  perfect  fitness  in  any  other. 
^  Certain  principles  arc  fundamental,  however,  and  may  be 
^'   indicated  in  a  general  plan.     Discussion  of  these  general 
,    principles  unattached  to  a  specific  organization,  on  the  other 
(5^  hand,  would  hardly  be  quite  serviceable,  for  the  principles 
ijv    so  discussed  would  lack  concreteness  and  definiteness  to 
.   readers  not  already  familiar  with  the  application  of  such 
^   principles  to  specific  cases.     In  this  book  effort  has  been 
•  made  to  discuss  general  principles  and  to  apply  them  for 
Ij  .illustration  in  cprfa in  <;pp^fic  t^es  of  institution — usually 
;^  ^ejjao^complicated  type  likely  to  be  found  in  most  com- 
f-i^  muQitJes.^   Yet  the  application  here  mdicated  may  noFlit 
exactly  any  particular  institution  even  of  that  type,  for  cer- 
tain assumptions  must  be  made  in  the  distribution  of  costs, 
and  not  all  of  these  particular  assumptions  may  hold  valid 
in  a  particular  case;  but  the  author  hopes  that  the  careful 
and  intelligent  reader  will  be  able  to  adjust  the  accounting 
plan  here  outlined  to  any  particular  circumstances  of  his 
need. 

The  plan  outlined  will  appear  to  most  persons  extremely 
complicated  and  abounding  in  red  tape.  As  expounded 
here,  the  plan  undoubtedly  is  so ;  but  many  plans  are  much 
more  simple  in  operation  than  in  theory.  It  may  take  a 
page  of  text  to  describe  a  process  performed  in  a  few  sec- 
onds of  bookkeeping,  and  many  varieties  of  transaction 


vi  INTRODUCTION 

must  be  suggested  in  such  a  treatise  as  this  even  though 
only  one  of  them  will  be  applied  in  any  specific  case.  In 
order,  again,  to  make  the  treatment  comprehensive,  effort 
has  been  made  in  this  book  to  provide  for  virtually  all  types 
of  contingency  and  of  variation  from  the  simplest  type  of 
organization,  and  therefore  the  discussion  here  is  meant 
to  cover  at  the  same  time  the  simple,  the  somewhat  com- 
plex, and  the  extremely  complex  conditions  of  any  estab- 
lishment. Obviously  a  treatment  intended  to  be  compre- 
hensive for  such  conditions  must  be  in  itself  complicated, 
even  though  its  application  in  a  single  case  may  be  simple 
both  in  theory  and  in  practice. 

A  glance  at  the  forms  and  schedules  may,  again,  sug- 
gest a  vast  amount  of  detail  and  of  clerical  labor  in  the 
keeping  of  records;  but  if  one  examines  them  carefully  one 
will  note  that,  although  many  of  them  are  used  daily  or 
even  oftener,  others  are  used  only  weekly,  some  only 
monthly,  and  others  only  annually.  If  they  could  be  ar- 
ranged so  that  one  would  see  at  once  only  those  in  use 
at  any  particular  time,  one  would  observe  that  the  number 
is  not  great,  the  labor  is  not  prohibitive,  and  the  cost  is 
practically  insignificant. 

If  any  one  should  hesitate  to  introduce  a  cost-account- 
ing plan  in  an  institution  for  fear  of  the  cost,  he  might 
substitute,  for  continuous  use  of  the  forms  and  accounts 
here  indicated,  an  occasional  or  periodic  use  of  them  and 
so  learn  certain  averages  and  standards.  If,  for  instance, 
it  were  deemed  inadvisable  to  keep  a  constant  record  for 
each  meal  of  the  special  or  occasional  foods  consumed,  one 
might  well  use  the  forms  here  shown  for  certain  specified 
periods,  such  as  one  week  in  a  month  or  four  isolated 
months  in  a  year,  and  use  the  results  for  establishing  ratios 
and  averages.  Similarly,  one  might  keep  temporarily  cer- 
tain  subordinate-ledger   accounts    for   details    of   expense 


INTRODUCTION  vii 

within  departments  (such  as  freight  and  supplies)  and  learn 
about  what  proportion  of  the  total  charges  on  those  scores 
are  attributable  to  certain  departments,  and  then  use  those 
ratios,  without  further  detailed  accounting,  over  long  pe- 
riods. The  system  here  shown,  in  other  words,  may  be  used 
in  part  without  nullifying  its  value  as  a  system.  It  is  here 
made  complex  only  that  it  may  be  made  comprehensive. 
The  text,  again,  suggests  monthly  closing  of  accounts.  The 
plan  is  equally  workable,  though  it  cannot  produce  results 
so  satisfactory,  if  accounts  are  closed  annually. 

A  few  illustrations  of  the  possibilities  of  simplifying 
the  plan  shown  herein  are  suggested  by  observation  of  the 
subdivision  of  many  accounts.  For  hospitals,  separate  ac- 
counts are  recommended  for  several  kinds  of  nurses  (super- 
intending, graduate,  special,  and  those  in  training),  for 
orderlies,  and  for  ward  employees.  Obviously,  if  one  is  not 
willing  to  go  to  the  expense  of  making  this  separation,  one 
may  combine  them  all  into  a  single  account — though  this 
by  so  much  reduces  the  possibility  of  making  a  comparison 
of  costs  with  hospitals  where  the  conditions  of  nursing  are 
different  or  the  classification  is  more  detailed.  Similarly, 
separate  accounts  are  shown  here  to  cover  maintenance  of 
equipment,  in  the  housekeeping  department,  for  the  dining- 
room,  for  the  bedrooms,  and  for  the  general  household. 
In  many  institutions  this  subdivision  would  be  hardly  worth 
while.  In  the  accounts  for  libraries,  again,  separate  wages 
costs  are  kept  for  administrative  officers,  cataloguers,  order 
clerks,  delivery  clerks,  etc.  Commonly  this  subdivision 
would  not  be  necessary.  Every  consolidation  of  accounts 
simplifies  the  accounting  process,  but  by  so  much  limits  the 
information  which  the  accounts  may  give;  and  therefore  in 
this  book  divisions  which  under  any  ordinary  circumstances 
are  thought  to  be  worth  while  are  given  in  detail — not 
because  the  division   is  recommended   in  every  case,  but 


viii  INTRODUCTION 

merely  in  the  desire  to  have  it  noted  for  the  case  when  it 
is  necessary,  and  with  the  thought  that  wherever  it  is  unde- 
sirable consoHdation  will  suggest  itself  as  obvious. 

Most  of  the  illustrations  used  are  for  conditions  likely 
to  arise  in  hospitals;  but  most  other  institutions  are  subject 
not  only  to  many  conditions  similar  to  those  in  hospitals, 
but  also  to  other  conditions  which,  though  not  similar  in 
outward  characteristics,  are  nevertheless  capable  of  expres- 
sion in  the  accounts  by  the  application  of  similar  principles. 
It  is  believed  that  few  problems  will  arise  in  other  institu- 
tions not  capable  of  solution  by  the  application  of  the 
principles  indicated  for  hospitals.  Nevertheless  certain 
suggestions  are  made  not  only  for  specific  accounts  likely 
to  be  required  in  institutions  other  than  hospitals,  but  also 
for  the  content  of  those  accounts.  In  one  or  two  instances 
illustrations  are  given  of  the  method  of  drawing  conclu- 
sions from  such  accounts  in  ways  somewhat  different  from 
those  desirable  for  hospitals.  It  would  have  been  possible, 
of  course,  to  treat  every  particular  of  the  accounts  from 
the  point  of  view  of  hospitals,  then  from  that  of  educa- 
tional institutions,  and  lastly  from  that  of  hotels  or  clubs, 
and  to  gather  into  one  place  all  lists  of  accounts,  all  forms, 
and  all  comments  relating  to  any  phase  of  the  account- 
ing; but  that  would  have  produced  a  treatise  which 
would  hardly  be  usable  except  for  the  theoretical  student; 
for  the  treatment  of  accounts  for  no  institution  would  be 
in  connected  form.  For  this  reason  the  illustrations  are 
taken  for  each  chapter  as  a  whole  from  the  circumstances  of 
hospitals,  and  then  variations  or  additions  for  other  insti- 
tutions are  suggested  in  a  supplementary  discussion. 

No  attempt  is  made  in  this  book  to  describe  the  ordi- 
nary processes  of  bookkeeping,  or  to  direct  a  person  un- 
trained as  a  bookkeeper  in  the  method  of  making  entries. 
Cost  accounting  cannot  be  done  by  persons  who  cannot 


INTRODUCTION  ix 

"keep  books."  So  far  as  any  higher  type  of  bookkeeping  is 
required  here  than  that  familiar  to  bookkeepers  in  institu- 
tions, the  information  regarding  it  should  be  easily  obtain- 
able from  books  dealing  with  the  subject.  This  plan  pre- 
supposes the  bookkeeper's  knowledge  of  special-column 
cash  books,  of  voucher  registers,  of  subordinate  ledgers, 
and  of  controlling  accounts.  Some  one  in  any  institution 
should  have  a  general  knowledge  of  bookkeeping  and 
accounting  principles;  but  he  needs  no  more  technical  or 
detailed  knowledge  than  can  be  obtained  from  the  general 
chapters  in  the  author's  book  entitled  "Accounts:  Their 
Construction  and  Interpretation,"  and  from  the  treatment 
there  of  one  or  two  special  subjects  (such  as  accounting  for 
investments)  related  to  institutional  affairs. 

The  general  principles  here  worked  out  have  been 
recommended  by  a  committee  of  persons  interested  in  insti- 
tutional management.  Appendix  E  gives  a  copy  of  the 
report  of  that  committee  (on  uniform  accounting  for  in- 
stitutions) at  the  Lake  Placid  Conference  in  June,  1912. 
The  author  is  indebted  to  the  persons  whose  names  appear 
in  that  report,  and  to  many  others,  for  valuable  suggestions. 


TABLE   OF  CONTENTS 

CHAPTER  PAGE 

I  General  Principles 1 

II  The  Balance  Sheet 16 

III  The  Statement  of  Financial  Transactions  for  the  Year  43 

IV  The  Classification  of  Expense  Accounts 63 

V  The  Method  of  Determining  Costs  in  Detail 97 

VI    Forms  for  the  Determination  of  Costs 107 

VII    Closing  Processes 170 

APPENDIX 

A  I  Alphabetical  Index  of  Symbols  of  Hospital  Ac- 
counts       197 

II    Alphabetical  Index  of  Additional  Symbols  for  In- 
stitutions Other  Than  Hospitals 206 

B  Alphabetical  Index  of  Common  Items  of  Hospital 
Expense,  with  the  Symbols  of  Accounts  Charge- 
able      211 

C  Comparison  of  Accounts  of  the  New  York  Plan  of 
Accounting  for  Hospitals  and  the  Plan  Advo- 
cated Herein 217 

D  The  Bookkeeping  Entries  for  Imaginary  Transac- 
tions in  a  Hospital 220 

E  Report  of  the  Committee  on  Uniform  Accounting 

FOR  Institutions 236 

Index 243 

LIST  OF  GENERAL  FORMS 


Balance  Sheet 28 

Furniture  and  Fixtures 30 

Investments 31 

Statement  of  Condition  of  Special  Funds  . .  32 
B                         Statement  of  Financial  Transactions  for 

the  Year 51 

Earnings,  Schedule  A  51 

Endowment  Income,  Schedule  B 51 

Normal  Current  Income,  Schedule  C 51 

Special  Items,  Schedule  D 52 

xi 


GENERAL 

Stn'PORTING 

FORM 

SCHEDULES 

A 

I 

II 

III 

GENERAL 

SUPPORTING 

FORM 

SCHEDULES 

c 

IV 

V 

VI 

xii  TABLE  OF  CONTENTS 


PAGE 

Summary  of  Financial  Transactions  for  the 

Year 54 

Final  Summary  of  Institution  Expenses  ....  192 

Revenue  from  Institution  Sources 56 

Comparison  of  Departmental    Income  and 

Expense 57 

VI      Comparison  of  Divisional  Income  and  Ex- 
pense    58 

VII      Subscriptions  from  Normal  Sources 60 

VIII      Legacies  and  Other  Special  Contributions 

Received 61 

D                         Expense  Ledger 110 

TABLE  OF  LISTS  OF  SYMBOLS 

Capital  Accounts — 

Hospitals,  etc 35 

Schools,  Colleges,  etc 37 

Hotels,  Clubs,  etc 40 

Expense  Accounts — 

Hospitals,  etc 66 

Schools,  Colleges,  etc 90 

Hotels,  Clubs,  etc 94 

Income  Accounts — 

Earnings 56 

Other  Income 59 

Alphabetical  Indexes — 

Hospitals,  etc 197 

Other  Institutions 206 

Conunon  Items  of  Hospital  Expense 211 

LIST  OF  FORMS  FOR  THE  DETERMINATION  OF  COSTS 

FORK 
NI71IBER 

1  Registry  Book 117 

2  Daily  Ward  Patient  Report 118 

3  Ward  Record 120 

4  Monthly  Patient  Summary,  All  Wards 122 

4a    Annual  Patient  Summary 125 

5  Monthly  Discharge  and  Death  Record 127 


TABLE  OF  CONTENTS  xiii 

FORM 

n-umber  page 

5a    Annual  Discharge  and  Death  Record 128 

6  Monthly  Patient  Report 130 

6a    Annual  Patient  Report 131 

7  Time  Sheet 132 

7x    Time  Sheet  Appendix 135 

8  House  Tables  Requisition 136 

9  Ward  Diet  Requisition 137 

10  Summary  Patient  Diet  Requisition,  All  Wards 137 

1 1  Requisition  on  the  Steward's  Department 140 

12w   Weekly  Dietary  Summary 142 

12  Monthly  Dietary  Summary 143 

13  Calculation  of  Special  Food  Costs 145 

14w   Weekly  Summary  of  Special  Food  Costs 147 

14  Monthly  Summary  of  Special  Food  Costs 148 

15  Calculation  of  Occasional  Common  Food  Costs 149 

16w  Weekly  Summary  of  Occasional  Common  Food  Costs.  .  151 

16  Monthly  Summary  of  Occasional  Common  Food  Costs  . .  152 

17  Calculation  of  Regular  Common  Food  Costs 154 

18  Summary  of  Average  Food  Costs  per  Day 156 

19  House  Tables  Record 158 

20  Distribution  of  Food  Costs 160 

21  Engineer's  Daily  Time  Card 161 

22  Engineer's  Monthly  Summary 163 

23  Space-Cost  Basis 165 

24  Space-Cost  Distribution 167 

25  Monthly  Record  of  Ice 168 


COST 
ACCOUNTING  FOR  INSTITUTIONS 

CHAPTER    I 

GENERAL   PRINCIPLES 

Cost  accounting  attempts  to  help  managers  in  answer- 
ing three  sorts  of  questions:  first,  how  may  prices  be  ad- 
justed to  the  service  rendered ;  second,  does  the  utmost 
economy  prevail  in  production  and  service,  and  if  not  how 
may  one  trace  the  waste ;  and,  third,  had  certain  work  best 
be  performed  in  the  establishment  or  outside? 

Adjustment  of  Prices  to  Services  Rendered 

As  illustration  of  the  first  of  these,  need  arises  for  some 
scientific  method  of  fixing  prices  of  rooms  in  college  dor- 
mitories and  in  hospitals  so  that  the  prices  paid  shall  be 
adjusted  to  the  comparative  value  of  the  rooms  furnished. 
It  may  be  true,  of  course,  that  in  many  cases  prices  are 
determined  by  what  in  railroading  is  called  "charging  what 
the  traffic  will  bear."  Thus,  although  it  would  normally 
seem  that  in  some  cases  a  higher  price  ought  to  be  fixed, 
putting  the  charge  on  the  same  basis  as  that  used  for  other 
services  would  in  reality  make  the  charge  prohibitive,  and 
so  adjustment  is  made  to  that  fact.  In  such  a  case  the 
price  must  be  lower  than  that  which  ought  ordinarily  to 
be  charged,   and  that  reduction  in  price  is  really  in  the 

X 


2  COST  ACCOUNTING  FOR   INSTITUTIONS 

nature  of  a  rebate.  If  the  accounting  is  serviceable,  how- 
ever, it  will  make  note  of  both  facts — that  is,  that  the  actual 
cost  of  rendering  the  service  is  high  in  that  case,  and  that 
the  price  charged  does  not  bear  the  same  relation  to  cost 
that  price  bears  in  other  cases.  Unless  the  accounting  takes 
note  of  both  facts,  it  fails  to  tell  the  truth.  It  may  indeed 
happen  that  the  price  is  lower  than  normal  for  reasons  of 
policy.  In  a  certain  hospital  the  prices  charged  for  certain 
private  rooms  are  really  lower  than  on  any  basis  of  cost 
they  ought  to  be.  The  managers  have  established  such  a 
scale  with  the  distinct  purpose  of  encouraging  persons  of 
means  to  come  to  the  hospital  for  treatment;  for  they  be- 
lieve that  the  service  rendered  will  be  deemed  so  valuable, 
and  the  interest  aroused  in  the  hospital  so  great,  that  these 
persons  will  become  valuable  friends  of  the  institution  and 
their  influence  will  increase  subscriptions  and  endowment. 
This  may  or  may  not  be  wise  policy,  but  good  accounting 
requires  that  some  note  shall  be  taken  of  the  fact. 

Economy  of  Operations 

An  illustration  of  the  second  sort  of  problem  which  cost 
accounting  should  help  to  solve  is  economy  in  laundry  work. 
If  it  is  found  in  any  institution  that  the  cost  for  laundry 
is  20  per  cent  higher  than  the  average  for  other  institutions, 
the  manager  is  not  doing  his  duty  unless  he  learns  why 
this  is  so  and  whether  it  can  be  prevented.  The  conditions 
may  be  such  that  there  is  no  escape.  Then  the  question 
arises  whether  it  would  be  cheaper  to  have  the  laundry 
work  done  outside. 

Economy  of  Results 

As  an  illustration  of  the  third  sort  of  problem  we  may 
take  that  which  arises  in  many  institutions  concerning  un- 
used land.     Most  institutions  have  a  considerable  tract  of 


GENERAL   PRINCIPLES  3 

land  for  air,  light,  and  prospect,  and  much  of  this  could 
be  utilized  for  raising  at  least  some  summer  vegetables.  In 
many  cases  where  this  has  been  done  the  apparent  cost  of 
food  has  been  much  reduced.  Yet  it  is  impossible  to  know 
whether  the  actual  cost  of  food  has  been  reduced  unless  one 
can  know  what  is  the  expense  for  labor  attributable  directly 
to  the  vegetables  raised.  If  the  engineer  or  other  employees 
have  much  leisure  during  the  summer  and  that  leisure  can 
be  devoted  to  this  use,  gardening  of  this  sort  is  likely  to 
be  profitable.  Only  careful  accounting  can  determine  just 
when  it  is  so  under  these  or  any  other  circumstances. 

Comparison  of  Results 

All  three  of  these  purposes  of  cost  accounting  demand 
that  costs  be  known  as  exactly  as  possible ;  and  the  second 
of  these  demands  that  a  manager  shall  know  not  only  the 
cost  in  his  own  institution  but  in  a  great  many  others,  for 
only  then  can  he  make  comparisons  between  his  own  estab- 
lishment and  others,  and  learn  whether  his  costs  are  ex- 
cessive. One  encouraging  feature  in  institutional  service 
as  compared  with  commercial  service  is  the  fact  that  the 
only  rivalry  that  can  be  acknowledged — at  least  with  a  good 
face — is  rivalry  in  efficiency.  Every  good  institution  is 
interested  in  institutional  progress,  and  is  glad  to  conduct 
experiments  and  .share  results  with  other  institutions.  In- 
deed, institutional  progress  would  have  been  far  slower  if 
there  had  not  been  something  of  a  professional  spirit  at 
work.  Professional  ethics  demand  that  each  person  in 
charge  of  an  institution  shall  have  not  only  something  of 
scientific  eagerness  to  learn  how  things  can  best  be  done, 
but  also  altruism  enough  to  help  others  to  benefit  by  his 
experience.  In  order  to  make  possible  comparisons  of  in- 
stitutions under  somewhat  similar  conditions,  a  uniform 
scheme  of  accounting  is  essential.     This  means,  moreover, 


4  COST  ACCOUNTING  FOR  INSTITUTIONS 

something  more  than  a  uniform  scheme  of  accounts;  for 
even  institutions  with  accounts  of  identical  names  may  have 
results  which  are  not  at  all  comparable;  uniformity  must 
extend  to  the  content  of  the  accounts  even  more  than  to 
their  forms  and  names.  Before  results  can  be  made  at 
all  comparable,  we  must  be  sure  that  in  all  institutions 
under  consideration  exactly  the  same  kinds  of  things  are 
charged  to  each  account. 


Uniformity  of  Accounts 

Virtually  every  institution  manager  who  is  subject  to 
trustees  or  other  superiors  is  eager  for  additional  funds, 
for  he  believes  that  work  can  be  done  more  economically 
or  at  least  more  satisfactorily  with  larger  capital.  The 
most  efficient  instrument  for  inducing  trustees  to  supply 
needed  funds  is  a  statement  of  financial  results  which  shows 
not  only  the  exact  cost  of  each  kind  of  service  rendered, 
but  also  how  each  cost  is  related  to  the  corresponding  cost 
in  other  institutions.  Trustees  are  usually  business  men 
who  know  the  value  of  a  dollar.  They  wish  to  know 
definite  facts  about  the  yield  of  the  dollars  entrusted  to 
them,  and  they  are  far  more  interested  in  these  than  in 
any  hypotheses  and  managerial  ambitions.  Every  institu- 
tion has  some  advantages  over  other  institutions,  and  every 
institution  has  some  handicaps;  but  the  good  manager  will 
attempt  to  learn  by  concrete  figures  exactly  what  are  his 
handicaps  and  what  they  cost,  and  what  are  the  actual  sav- 
ings from  his  advantages.  He  should  not  allow  the  handi- 
caps for  which  circumstances — or  the  trustees — are  responsi- 
ble to  swallow  up  the  gains  for  which  the  credit  is  prop- 
erly his.  Until  uniform  accounting,  or  at  least  something 
approaching  it,  becomes  common,  no  manager  will  be  in 
a  position  to  make  clear  to  his  trustees  just  what  are  the 


GENERAL   PRINCIPLES  5 

handicaps  under  which  he  is  working  and  just  what  are  the 
economies  that  have  resulted  from  his  management. 

As  an  illustration,  a  certain  hospital  turns  away  paying 
patients  for  lack  of  room,  and  yet  gives  its  superintendent 
private  quarters  which,  if  let  to  private-room  patients, 
would  yield  several  hundred  dollars  weekly;  total  costs  in 
this  hospital  are  not  only  far  above  its  income,  but  high 
in  comparison  with  those  of  other  hospitals  of  its  class. 
Another  hospital  nearby,  practically  self-supporting,  gives 
its  superintendent  quarters  worth  not  half  so  much;  yet 
the  hospital  giving  its  superintendent  expensive  quarters 
shows  by  the  books  a  lower  administrative  cost  than  the 
other.  The  books  very  clearly  do  not  show  the  facts.  The 
objection  is  not  necessarily  to  the  spacious  quarters,  but 
to  the  fact  that  the  accounts  take  no  cognizance,  in  the  ad- 
ministrative cost,  of  anything  but  salary,  and  therefore  the 
result  of  this  extravagance  of  space  does  not  appear,  and 
a  comparison  of  the  two  sets  of  accounts  is  sadly  mis- 
leading. Comparisons  of  accounts  when  the  method  of 
accounting  is  different  are  worse  than  useless,  for  they 
may  show  an  advantage  where  there  is  really  a  handicap. 

It  should  be  understood,  moreover,  that  accounting  has 
nothing  whatever  to  do  with  questions  of  policy.  To  give 
palatial  quarters  may  be  wise,  but  the  purpose  of  account- 
ing is  to  tell  about  business  transactions  the  truth  as  ex- 
actly as  it  can  be  learned,  and  the  determination  of  the 
truth  should  be  without  respect  to  persons,  prejudices,  or 
policies. 

Determination  of  Costs — Direct  Charges 

Let  us  now  turn  to  the  methods  of  learning  costs. 
First,  the  accounts  for  each  department  having  an  exclusive 
function  should  be  as  far  as  possible  distinct  from  those  for 
every  other  department.     The   steward's   department,    for 


6  COST  ACCOUNTING  FOR   INSTITUTIONS 

illustration,  is  concerned  with  food  in  a  more  or  less  raw 
state — except,  perchance,  so  far  as  food  is  purchased  neces- 
sarily in  a  cooked  state,  as  are  shredded  wheat  and  nu- 
merous other  cereals.  It  may  chance  that  in  some  institu- 
tion the  purchasing  is  careless  and  therefore  the  costs  high, 
and  yet  the  cooking  is  extremely  economical.  In  such  a 
case,  unless  a  distinction  is  made  between  the  steward's 
department  and  the  kitchen  department,  the  gross  cost  for 
table  board,  if  only  that  figure  is  preserved,  may  be  normal, 
and  so  hide  the  fact  that  one  department  is  well  managed 
and  the  other  ill.  The  kitchen  should  be  charged  for  the 
cost  of  cooking  food  and  for  that  alone;  this  should  in- 
clude the  cost  of  fuel,  labor,  repairs,  etc.  The  serving  of 
food,  again,  should  not  be  confused  with  purchase  and 
cooking,  for  in  some  cases  there  is  very  great  wasteful- 
ness in  the  unfortunate  arrangement  of  the  establishment, 
so  that  the  cost  of  service  brings  up  the  total  cost  of  food 
in  spite  of  the  fact  that  both  the  purchasing  department 
and  the  cooking  department  are  well  managed.  Costs 
should  be  found  for  each  department. 

The  expense  of  the  purely  housekeeping  items,  such  as 
sweeping,  dusting,  and  scrubbing,  should  not  be  confused 
with  other  expenses.  Where  some  of  this  work  is  done 
by  persons  employed  primarily  in  other  departments,  as 
is  often  the  case  in  hospitals  where  the  nurses  have  charge 
of  patients'  rooms,  an  attempt  should  be  made  to  distinguish 
between  that  part  of  the  nurses'  wages  which  is  for  pro- 
fessional care  of  patients  and  that  which  is  for  house- 
keeping. At  least  it  is  true  that  the  cost  of  taking  care 
of  the  general  rooms,  such  as  halls,  stairways,  reception 
rooms,  assembly  rooms,  etc.,  should  be  carried  distinct  from 
the  cost  of  the  care  of  private  rooms.  Laundry  charges 
should  be  carried  distinct  from  all  others,  and  should  in- 
clude fuel,  soap,  starch,  labor,  etc. 


GENERAL   PRINCIPLES  7 

The  cost  of  the  care  of  grounds  should  be  separately 
determined ;  this  would  ordinarily  include  the  care  of  flower 
beds,  the  mowing  of  lawns,  shoveling  snow  from  walks,  etc. 
This  appears  on  its  face  to  be  a  small  item,  but  obviously 
an  institution  having  large  grounds  with  many  walks  has 
a  very  much  heavier  charge  in  this  respect  than  others, 
and  a  manager  who  is  judged  by  his  total  cost  per  resident- 
day  is  handicapped  as  compared  with  a  manager  who  has 
no  expensive  grounds  to  care  for;  he  should  be  able  to 
point  out  to  the  trustees  of  his  institution  just  what  it 
costs  to  maintain  its  external  attractiveness.  Separate  ac- 
counts should  be  kept  for  maintenance  of  buildings  and 
for  maintenance  of  equipment.  Of  course,  as  in  all  busi- 
ness operations,  separate  accounts  should  be  kept  for  taxes, 
insurance,  water,  gas,  electric  light,  legal  expenses,  etc. 

Determination  of  Costs — Indirect  Charges 

Such  accounts  as  those  just  mentioned  may  be  called 
"primary  accounts."  They  require  nothing  more  than  sim- 
ple bookkeeping.  We  must  next  pass  to  matters  less  ob- 
vious, for  we  must  make  an  analysis  of  transactions  and 
provide  for  the  distribution  of  indirect  charges.  In  order 
that  we  may  know  what  are  the  exact  costs  for  various  kinds 
of  service,  we  must  learn  not  only  the  total  direct  costs, 
but  the  cost  of  each  of  many  separate  items,  some  of  which 
may  be  indirect  and  apparently  remote.  We  must  dis- 
tribute most  of  what  are  commonly  called  "overhead"  costs 
— that  is,  costs  incurred  for  several  services  in  common — 
also  called  "burden,"  and  "joint  costs,"  among  the  various 
departments. 

To  say  that  we  must  know  the  difference  in  cost  for 
employees  between  a  seven-by-seven  bed-room  and  a  ten- 
by-twelve  bed-room  is  not  to  recommend  the  seven-by- 
scven  bed-room ;  it  is  only  to  say  that  we  must  know  what 


8  COST  ACCOUNTING  FOR   INSTITUTIONS 

we  are  getting  for  the  money  spent.  All  the  costs  which 
are  indirectly  incurred  for  any  department  should  be  ulti- 
mately carried  to  the  accounts  of  that  department.  It 
will  cost  more  to  do  the  laundry  work  in  an  establishment 
paying  its  laundresses  such  high  wages  that  they  can  live 
comfortably  in  rooms  which  they  must  hire  in  the  neigh- 
borhood at  normal  city  lodging-house  prices  than  in  an 
institution  where  the  laundresses  are  boarded  on  the  prem- 
ises; and  if  the  accounts  in  both  of  these  cases  charge  to 
the  laundry  department  only  the  actual  money-wages  paid, 
one  will  show  a  high  labor  cost  and  the  other  a  cost  singu- 
larly low.  Before  any  comparison  can  be  made  between 
the  two  cases,  therefore,  the  laundry  accounts  must  be 
brought  to  a  common  basis,  and  the  cost  figures  for  laundry 
work  must  include  not  only  the  obvious  primary  costs,  like 
fuel,  supplies  and  wages,  but  also  a  charge  for  laundry 
space,  for  laundresses'  rooms,  for  food  (including  cooking 
and  serving)  served  to  laundresses,  for  lighting,  for  heating, 
etc.,  and  we  must  realize  that  the  cost  of  the  rooms  should 
include  not  only  their  care  but  a  share  of  insurance,  taxes, 
depreciation,  etc.,  on  the  cost  of  the  building.  This  sort 
of  indirect  cost  prevails  throughout  most  institutions,  and 
the  importance  of  provision  for  its  distribution  should  not 
be  slighted. 

Classification  of  Cost  Figures 

Figures  of  cost  should  be  classified  not  on  the  basis  of 
the  objects  with  which  they  happen  to  be  identified,  but 
on  the  basis  of  the  purpose  which  the  expenditure  was  in- 
curred to  serve.  The  purpose  of  an  institution  is  to  serve 
guests,  or  students,  or  patients,  or  inmates.  We  wish  to 
know,  as  our  final  figures,  the  cost,  per  capita,  for  food, 
for  shelter,  for  laundry,  etc.,  for  those  residents  for  whom 
the  institution  is  maintained.     Services  performed  for  em- 


GENERAL   PRINCIPLES  9 

ployees  are  incidental,  as  a  part  of  wages,  to  the  prime 
function  of  the  institution.  The  accounts  should  be  kept 
so  as  to  distinguish  the  incidental  from  the  functional.  So 
the  figure  of  compensation  for  all  employees  should  in- 
clude not  merely  wages  but  everything  else  in  the  nature 
of  compensation,  such  as  board,  lodging,  and  laundry.  On 
the  final  summary  of  patient-day  costs,  or  guest-day  costs, 
should  appear  all  the  costs  for  each  group  of  expenses,  such 
as  administration,  professional  care,  lodging,  board,  and 
laundry;  and  these  are  made  up  in  part  of  items  in  lieu 
of  wages  for  employees  in  several  departments.  These 
items  not  only  should  get  into  the  departmental  costs,  and 
thence  indirectly  into  the  patient  or  guest  costs,  but  should 
not  get  into  the  direct  costs  for  patients,  guests,  etc.  The 
cost  of  food  for  a  laundress  is  not  guest-food-cost,  but  a 
guest-laundry-cost;  and  the  cost  of  laundry  for  a  cook  is 
not  a  guest-laundry-cost,  but  a  guest-cooking-cost.  It  is 
absurd  that  an  institution  having  many  servants  and  a 
rather  scanty  commissary  should  show  as  high  a  cost  for 
food  as  an  institution  having  few  servants  and  a  much  bet- 
ter standard  of  living;  and  yet,  if  we  fail  to  distinguish 
between  the  board  of  employees  and  that  of  guests,  a  large 
number  of  servants  would  raise  the  figure  naturally  inter- 
preted to  represent  the  cost  of  supplying  guests  with  food, 
without  in  the  least  resulting  from  better  or  more  abun- 
dant food  supplied  to  guests'  tables. 

Requirements  of  Cost  Accounting 

This  sounds  very  complicated,  and  the  reader  may  look 
with  much  skepticism  upon  the  desirability  of  doing  so  much 
accounting.  It  is  true  that  many  bookkeepers  are  not  com- 
petent to  devise  systems  which  shall  give  a  great  mass  of 
detail  without  an  inordinate  amount  of  time  and  manu- 
script. It  is  very  difficult,  on  the  other  hand,  for  a  person 
not  familiar  with  bookkeeping  processes  to  realize  that  a 


lO  COST  ACCOUNTING  FOR   INSTITUTIONS 

great  deal  of  information  may  be  recorded  and  correlated 
and  preserved  with  very  little  labor — if  the  bookkeeping 
system  is  adapted  to  the  specific  needs  of  the  case.  Ade- 
quate accounts  cannot  be  kept  without  adequate  bookkeep- 
ing, and  no  one  should  think  for  a  moment  that  a  proper 
system  of  accounting  can  be  introduced  in  any  sort  of  in- 
stitution merely  by  the  addition  of  a  little  untrained  labor. 
The  person  in  charge  of  the  accounts  must  know  not  only 
what  are  the  common  labor-saving  devices  of  bookkeeping, 
but  also  what  fundamental  accounting  principles  must  be 
observed  in  drawing  final  conclusions  from  the  records. 
With  such  supervision,  however,  it  is  possible  to  devise  a 
plan  which  can  be  carried  out  by  persons  not  particularly 
skilled  in  the  handling  of  accounts,  and  to  get  results,  for 
various  institutions,  that  make  possible  a  really  valuable 
comparison  between  them.  When  a  good  system  has  once 
been  devised,  it  is  not  a  laborious  task  to  make  proper 
charges  for  direct  costs  or  to  make  proper  distribution  of 
secondary  costs,  and  no  extensive  bookkeeping  is  involved. 
An  outline  of  the  method  is  given,  in  connection  with  the 
desired  accounts,  in  the  pages  following. 

Distribution  of  Space  Costs 

When  the  primary  accounts  have  been  charged  with  the 
obvious  items  of  cost,  we  have  merely  to  subdivide  the  total 
of  those  which  stand  at  the  foundation  of  the  whole  institu- 
tion and  distribute  them  on  an  equitable  basis  among  the 
various  departments.  For  illustration,  insurance  on  build- 
ings, taxes  on  buildings,  depreciation  of  buildings,  and 
repairs  of  buildings,  are  shared  by  the  various  departments 
in  the  ratio  of  the  building  space  occupied.  Commonly  the 
square  foot  of  floor  space  is  a  satisfactory  unit  for  distri- 
bution— unless,  indeed,  it  chances  that  some  stories  are 
higher  than  others  or  some  buildings  are  less  expensive 


GENERAL   PRINCIPLES  II 

than  others.  It  is  obvious  that  if  the  first  story  has  a  height 
of  twelve  feet,  the  second  ten,  and  the  third  eight,  it  is 
hardly  fair  to  distribute  room  costs  on  the  basis  of  floor 
space  alone,  for  the  expense  of  the  structure  lies  in  height 
quite  as  well  as  in  horizontal  dimension.  Ordinarily,  too, 
an  upper  floor  is  less  desirable  than  a  lower.  In  the  matter 
of  cleaning,  window  space  and  wall  space  may  be  quite  as 
important  as  floor  space.  The  actual  distribution  must  be 
determined  in  every  case  by  the  circumstances  of  that  case, 
and  when  the  principle  has  once  been  recognized  there  is 
likely  to  be  very  little  serious  discrepancy  as  between  insti- 
tutions. 

Distribution  of  Food  and  Service  Costs 

The  most  complicated  figure  to  distribute  between  de- 
partments is  likely  to  be  that  for  food  costs — at  least  in  an 
institution  supplying  several  kinds  of  diet.  In  a  hospital, 
for  instance,  there  is  likely  to  be  a  table  for  house  offi- 
cers, at  which  may  or  may  not  be  served  the  same  sort  of 
food  as  that  served  ordinarily  to  patients  in  private  rooms; 
next  in  order  is  likely  to  come  the  regular  house  diet  for 
patients  in  wards  and  for  nurses ;  next  may  come  the  coarser 
diet  for  non-professional  employees;  and  last,  the  fever  or 
liquid  diet.  Many  institution  managers  will  say  that  the 
attempt  to  learn  just  how  much  food  goes  to  each  of  these 
groups  of  diet  would  cost  more  than  the  value  of  the  infor- 
mation would  warrant.  Others  have  learned  it  and  profited 
at  small  cost,  for  much  of  the  needed  information  is — or 
should  be — at  hand.  In  any  accounting  worthy  of  the 
name  careful  store  records  are  kept.  Everything  going 
into  the  store-rooin  is  debited,  and  everything  going  out  is 
credited.  Many  things  go  out  of  the  store-room  for  use 
in  all  four  classes  of  diet  mentioned,  and  many  others  go 
out  for  the  use  of  only  one  of  them;  but  it  is  always  some- 


12  COST  ACCOUNTING   FOR   INSTITUTIONS 

one's  business  to  know  the  destination  of  everything  issued. 
The  housekeeper  or  dietitian  or  someone  else  must  regu- 
larly provide  a  list  of  foods  required,  as  a  guide  in  the 
preparation  of  meals,  and  the  only  labor  necessary  for 
learning  costs  is  that  of  entering  the  amount  consumed, 
the  price,  and  the  product.  The  calculation  may,  of  course, 
be  made  at  convenient  intervals  in  the  general  ofifice,  and 
each  department  may  then  be  charged  for  its  share. 

We  may  learn  kitchen  cost  by  taking  the  sum  of  the 
space  cost  of  the  kitchen,  cooks'  wages,  fuel  cost,  rooms 
and  board  of  cooks,  etc.  Serving  cost,  housekeeping  cost, 
laundry  cost,  and  dormitory  costs  may  be  similarly  learned. 
The  sum  of  these  gives  us  the  total  cost  per  resident-day, 
in  the  terms  of  cost  for  each  particular  service  rendered. 
This  is  obviously  our  final  figure,  the  ultimate  thing  sought 
— for  all  the  departments  are  subservient  to  the  residents. 
As  we  go  along,  however,  we  determine  for  each  depart- 
ment its  own  cost,  in  order  that  we  may  know  whether 
it  is  most  economically  managed. 

Subdivision  of  Accounts 

Under  the  method  of  primary  and  secondary  accounts 
outlined  above,  any  number  of  subdivisions  may  be  made; 
and  even  with  uniform  accounting  an  institution  desiring 
to  trace  any  detailed  costs  may  make  as  many  subdivisions 
as  it  likes  without  destroying  the  uniformity,  if  only  its 
subdivisions  are  based  on  the  uniform  plan-;-that  is,  are 
capable  of  combination  to  produce  a  total  identical  in  sig- 
nificance with  that  of  the  institutions  which  have  not  made 
subdivisions.  The  minute  subdivisions  would  ordinarily 
be  kept  for  purposes  of  comparison  one  year  with  another 
within  the  institution,  whereas  the  figures  for  groups  as  a 
whole  would  ordinarily  be  kept  for  comparison  with  those 
for  other  institutions.     It  is  not  ordinarily  possible  to  com- 


GENERAL   PRINCIPLES  13 

pare  detailed  figures  with  those  for  other  institutions,  lor 
conditions  are  widely  different.  Total  laundry  costs  per 
resident-day,  for  instance,  may  well  be  compared  between 
institutions,  but  the  cost  of  fuel  is  likely  to  be  useful  chiefly 
for  comparison  within  the  institution  itself;  for  one  laun- 
dry may  use  coal,  another  wood,  another  gas,  another  oil, 
another  electricity,  and  another  steam. 

Conditions  of  Effective  Cost  Comparison 

Accounting  is  something  more,  however,  than  determin- 
ing mere  financial  facts.  Statistics  are  of  great  importance 
in  making  it  possible  to  learn  why  differences  in  costs  per- 
sist. With  regard  to  food,  for  instance,  it  is  true  that  in- 
stitutions in  some  places  are  able  to  buy  jneats  much  more 
cheaply  than  others,  but  suffer  a  considerable  loss  in  com- 
parison with  others  in  the  purchase  of  groceries.  Differ- 
ences are  very  great  with  regard  to  dairy  products.  If, 
then,  we  are  going  to  compare  food  costs  and  get  results 
worth  anything,  we  must  know  something  of  the  condi- 
tions under  which  each  institution  operates.  We  need  to 
know  not  only  what  prices  it  is  forced  to  pay,  but  also  what 
is  the  prevailing  tendency  in  that  institution  with  regard 
to  the  kind  of  diet  furnished.  For  this  purpose  it  is  well  to 
keep  statistical  figures  for  the  average  price  of  several 
groups  of  food — such,  for  instance,  as  beef,  mutton,  lamb, 
fowl,  butter,  milk,  eggs,  etc.  To  these  may  well  be  added 
the  average  price  per  pound  for  certain  staple  articles  like 
fiour,  sugar,  tea,  coffee.  Lastly,  in  order  that  the  records 
may  show  the  relative  importance  of  various  classes  of  food 
in  the  total  cost  of  diet,  the  total  expenditure  in  each  of 
many  groups  should  be  reported.  This  suggests  the  need 
of  maintaining  many  detailed  accounts  for  food  costs  in  the 
steward's  department.  Conclusions  from  these  accounts 
show  surprising  differences  between  different  institutions. 


14  COST  ACCOUNTING   FOR   INSTITUTIONS 

If  any  establishment  shows  a  conspicuously  low  purchasing 
power  of  money,  that  fact  should  stand  out  so  clearly  that 
the  reason  is  sure  to  be  investigated. 

Innumerable  other  statistics  not  burdensome  to  compile 
are  valuable  as  guides  in  determining  comparative  costs. 
For  illustration,  the  number  of  pieces  of  laundry  work,  dis- 
tinguishing the  character — as  by  separate  count  for  sheets, 
towels,  pillow  slips,  etc. — is  important  if  per  capita  costs 
are  to  be  compared.  The  area  of  garden  plots,  of  lawn  to 
be  mown,  and  of  walks  to  be  kept  free  of  snow,  are  con- 
venient figures.  The  area  of  floors  swept  weekly  per  capita 
gives  a  hint  as  to  the  comparative  cost  of  housekeeping 
labor.  Many  of  these  figures,  such  as  areas  and  ratios  of 
area,  are  practically  unchanging,  and  calculations  once 
made  are  good  for  months  or  years.  When  ratios  need  to 
be  applied  to  changing  monthly  totals,  calculating  devices 
like  the  slide-rule  and  adding  machines  may  be  utilized  so 
as  almost  to  eliminate  clerical  cost.  , 

Institutional  Products 

Question  often  arises  as  to  the  treatment  of  construc- 
tion work  performed  or  product  raised  within  the  institu- 
tion itself — as  by  carpenters  or  by  gardeners  or  farmers. 
Shall  these  be  debited  to  the  proper  accounts  at  cost,  or  at 
market  price  (crediting,  of  course,  the  producing  depart- 
ments) ?  In  view  of  the  fact  that  the  purpose  of  accounting 
in  institutions  is  usually  to  get  costs,  the  former  is  the 
logical  answer ;  but,  in  view  of  the  difficulty,  in  many  cases, 
of  learning  costs,  the  latter  is  often  the  practical  answer. 
Possibly  the  hardest  costs  to  learn  in  all  enterprises  are 
farm  costs,  for  they  are  singularly  interwoven.  To  learn 
costs  in  an  institution  owning  farms  might  mean  a  com- 
plicated accounting  system  within  a  system.  In  such  a  case, 
unless  the  farms  are  of  sufficient  importance  in  themselves 


GENERAL   PRINCIPLES  15 

to  be  worth  a  complete  cost-accounting  system,  the  obvious 
practical  method  is  to  charge  departments  for  products  at 
market  prices  and  credit  the  farms  with  the  earning.  When, 
however,  the  product  is  incidental,  Hke  vegetables  or  fruit 
raised  on  land  otherwise  idle,  it  is  well  to  charge  the  cost 
of  cultivation  to  the  accounts  representing  the  product — as 
fresh  vegetables,  or  fresh  fruit. 

Advantages  of  Comparison 

The  advantages  of  uniformity  should  not  be  neglected. 
No  man  ever  progressed  far  if  he  relied  wholly  on  what  he 
learned  by  his  own  experience.  It  is  absurd  to  spend  time 
and  money  learning  for  oneself  what  one's  neighbors 
learned  years  ago — or  even  what  they  are  now  learning. 
If  they  are  conducting  experiments  in  some  lines,  one  can 
most  profitably  conduct  experiments  in  another.  Then  a 
comparison  of  notes  teaches  each  what  the  others  have 
learned.  Only  with  uniformity,  however,  can  one  ever  com- 
pare significant  notes  with  one's  neighbor  and  profit  by  the 
other's  experiments. 


CHAPTER  II 
THE   BALANCE   SHEET 

It  has  sometimes  been  said  that  it  is  not  only  unneces- 
sary but  undesirable  for  institutions  having  a  charitable 
nature  to  show  capital  accounts;  for  the  prime  purpose  of 
such  institutions  is  not  to  show  solvency,  but  to  show  ac- 
complishment, and  the  prime  purpose  of  a  balance  sheet 
showing  capital  accounts  is  to  indicate  that  the  corporation 
is  able,  either  immediately  or  ultimately,  to  pay  its  debts. 
One  may  even  go  so  far  as  to  say  that  such  an  institution 
should  always  show  a  deficit,  for  it  always  should  do  a  little 
more  than  it  can  afford  to  do — and  so  make  the  public  see 
its  needs.  This  is  true,  but  other  considerations  make  it 
desirable  to  show  detailed  capital  accounts. 

Purpose  of  the  Balance  Sheet 

The  purpose  of  a  balance  sheet  is  not  merely  to  show 
solvency,  but  quite  as  much  to  show  accountability,  and  an 
institution  is  responsible  not  merely  to  produce  results 
in  the  way  of  service  and  product,  but  also  to  show 
that  for  everything  entrusted  to  it,  especially  for  endow- 
ment or  other  capital  funds,  it  has  something  of  value.  In 
order,  moreover,  to  show  whether  the  amount  of  capital 
invested  is  out  of  proportion  to  the  amount  of  product  or 
service  rendered,  and  whether  that  investment  is  of  a  type 
properly  subject  to  one  or  another  rate  of  depreciation,  it 
should  indicate  not  only  the  total  amount  of  capital  invest- 
ment, but  the  various  subdivisions  of  that  investment  among 

i6 


THE   BALANCE    SHEET  17 

the  various  departments  of  the  institution.  It  has  happened 
often  that  an  institution  has  suffered  a  high  operating  cost 
because  it  has  been  inadequately  suppHed  with  facilities;  it 
has  been  obliged  to  pay  heavily  in  wages  for  work  done 
by  hand  that  might  much  more  economically  have  been  done 
by  machinery.  It  has  occasionally  happened,  on  the  other 
hand,  that  an  institution  has  enjoyed  a  very  low  operating 
cost  because  work  has  been  done  in  large  part  by  expensive 
equipment  employing  little  hand  labor.  A  proper  judgment 
between  these  two  methods  of  operation  can  be  made  only 
when  interest,*  depreciation,  and  other  charges  due  to  cap- 
ital investment,  are  considered  in  the  ultimate  costs  of  oper- 
ation ;  and  since  we  must  have  a  basis  for  figuring  interest, 
depreciation,  etc.,  we  must  know  the  value  of  the  equip- 
ment in  each  department;  this  should  be  shown  either  on 
the  balance  sheet  or  on  a  schedule  appended  to  that  sheet. 

For  these  reasons  it  is  desirable  that  every  institution 
shall  maintain  a  complete  balance  sheet  indicating  what  it 
has  to  show  for  all  property  entrusted  to  it,  what  it  has 
invested  in  various  types  of  institution  property,  what  it 
has  invested  in  interest-  or  dividend-bearing  securities,  and 
finally  what  current  items  go  to  make  a  complete  statement 
of  resources  and  liabilities. 

Publication  of  Balance  Sheets 

Whether  the  institution  shall  publish  such  a  sheet,  how- 
ever, must  be  determined  by  policy.  If  an  institution  now 
exempt  from  taxation,  because  it  is  rendering  a  public  serv- 
ice, is  misjudged  by  a  group  of  citizens  who  clamor  for  tax- 
ation of  it,  the  publication  of  a  balance  sheet  might  be  un- 
wise; similarly  if  the  institution  is  supported  in  large  part 
by  persons  who  have  no  idea  of  the  cost  of  large  enter- 
prises, publication  of  the  amount  of  assets — because  likely 
to  make  people  think  it  much  better  supplied  with  funds 

♦See  page  103. 


l8  COST  ACCOUNTING  FOR   INSTITUTIONS 

and  facilities  than  it  really  is — would  be  unwise;  yet,  on 
the  other  hand,  if  it  is  supported  by  intelligent  people  who 
know  the  nature  of  its  need,  the  publication  of  the  full  bal- 
ance sheet  might  lead  to  the  raising  of  more  adequate  funds 
because  of  the  obvious  discrepancy  between  available  capital 
and  the  facilities  needed  for  the  work  undertaken.  In  gen- 
eral, however,  it  pays  to  be  absolutely  above-board.  Noth- 
ing goes  farther  to  destroy  confidence  in  an  institution  than 
a  suspicion  that  something  is  under  cover. 

Illustrative  Balance  Sheet 

It  would  be  possible,  but  confusing,  to  show  here  a  form 
of  balance  sheet  that  should  include  all  items  likely  to  oc- 
cur for  any  type  of  institution;  but  since  such  a  form 
would  include  for  each  type  of  institution  many  items  that 
would  occur  in  no  other  case  (as,  for  example,  for  clubs 
and  hotels,  for  educational  institutions,  etc.),  such  a  sheet 
would  be  very  cumbersome  and  would  look  not  at  all  like 
the  sheet  for  any  particular  institution.  The  illustration 
given  on  page  28  is  for  a  hospital,  and  is  chosen  because 
hospitals  cover  more  lines  of  activity  than  most  other  types 
of  institution.  One  can  easily  see  what  items  for  any  other 
institution  would  be  substituted  for  certain  items  shown 
here.  Suggestions  for  such  substitutions  follow  the  bal- 
ance sheet.  Since,  even  for  one  type  of  institution,  details 
are  likely  to  cumber  any  statement,  items  of  a  similar  sort 
are  grouped  in  the  form  here  shown,  and  provision  is  made 
for  a  supporting  schedule,  or  appendix,  for  each  group 
needing  further  elucidation. 

The  discussion  of  the  items  appearing  on  a  hospital  bal- 
ance sheet  is  intended  to  indicate  the  general  principles  of 
classification,  not  only  for  this  type  of  institution  but  for 
all ;  and  it  is  therefore  of  general  application.  The  hospital 
is  chosen  simply  as  the  best  means  of  illustrating  the  princi- 


THE   BALANCE    SHEET  ig 

pies,  and  all  general  discussion  of  these  principles  will  be 
found  in  this  chapter. 

Classification  of  Capital  and  Expense  Accounts 

The  capital  items  for  hospital  property  are  divided,  un- 
der the  plan  explained  in  detail  in  the  following  pages,  into 
fourteen  accounts.  These  various  accounts — summarized 
on  pages  24-26 — are  determined  by  the  same  sort  of  classi- 
fication as  that  used  for  current  expenses,  and  every  de- 
partment which  has  any  equipment  or  property  of  sufficient 
value  to  be  really  recognizable  as  belonging  to  that  depart- 
ment exclusively  has  accounts  both  for  that  property  and 
for  current  expenses.  The  division  between  departments, 
both  for  capital  and  expense  items  (the  order  followed  here 
is  the  logical  order  for  expense  accounts  rather  than  for 
capital  accounts,  but  simplicity  will  be  attained  by  follow- 
ing it  for  capital  accounts  also),  is  based  on  the  following 
principles : 

(a)  Administration 

The  administrative  department  is  charged,  both  for 
equipment  and  for  expenses,  with  the  cost  of  those  things 
which  serve  the  general  administrative  purposes  of  the  in- 
stitution as  a  whole — including  those  things  which  serve  all 
departments. 

(b)  Apparatus  and  Instruments 

The  charges  to  the  capital  account  for  apparatus  and 
instruments  cover  everything  of  the  nature  of  permanent 
medical  and  surgical  equipment  (supplies  rapidly  consumed 
are  charged  to  the  expense  account  for  this  department) ; 
but  only  things  used  directly  in  the  professional  care  of 
patients  should  be  charged  in  this  group.  As  indicated  in 
the  table,  when  the  pathological  laboratory  and  the  home 


20  COST  ACCOUNTING  FOR   INSTITUTIONS 

nursing  department  have  little  equipment,  the  costs  of 
equipment  for  them  may  well  be  included  with  the  cost  of 
permanent  apparatus  and  instruments ;  but  expenditure  for 
running  expenses  should  be  shown  separately  for  each. 

(c)  Dispensary 

The  dispensary,  or  out-patient  department,  serves  an 
entirely  different  type  of  need  from  that  of  the  hospital  as 
a  whole,  and  consequently  its  costs,  whether  capital  or  cur- 
rent, should  be  separately  reported. 

(d)  Emergency  Department 

The  emergency  department  may  be  similarly  situated ; 
but  if  there  is  not  a  separately  maintained  department,  no 
accounts  should  be  kept  for  the  items  naturally  falling  into 
this  group,  for  if  a  distinction  cannot  be  made  with  fair 
completeness  between  emergency  work,  dispensary  work, 
and  ordinary  care  of  patients,  the  distinction  should  not  be 
made  at  all. 

(e)  X-Ray  Department 

The  X-Ray  department  is  naturally  entirely  distinct 
from  the  other  departments,  at  least  so  far  as  its  equipment 
is  concerned ;  and  it  may  be  easily  kept  distinct  for  its  cur- 
rent expenses,  if  only  reasonable  care  is  taken  to  distinguish 
its  supplies,  wages,  and  other  items  from  those  of  other 
departments. 

(f)  Training  School 

The  training  school  is  one  of  the  departments  hardest  to 
place  in  a  uniform  scheme  of  accounting;  for  it  serves  a 
double  function  and  has  connected  with  it  two  types  of 
expenditure  and  at  least  one  type  of  income.  The  most 
logical  division  of  its  functions  considers  anything  afforded 
personally  to  nurses  in  training  (either  wages — when  any 


THE   BALANCE    SHEET  21 

are  paid — or  clothing,  laundry,  board,  and  equipment)  as 
a  cost  of  nursing,  and  therefore  chargeable  under  the  head 
of  professional  care  of  patients;  but  it  considers  expendi- 
ture for  purposes  of  teaching  (whether  wages  of  teachers, 
equipment  for  class  rooms,  books,  magazines,  maintenance 
— including  lighting  and  heating — of  class  rooms),  though 
incurred  directly  as  a  means  of  obtaining  nurses  and  giving 
them  compensation,  as  an  educational  cost — to  be  separately 
reported,  so  that  the  purely  educational  features  of  the  cost 
of  maintaining  nurses  in  training  may  be  compared  between 
different  institutions  and  between  different  periods  in  the 
same  institution.  Both  are  costs  of  nursing,  but  the  cost 
of  the  two  phases  of  expense  should  be  shown  separately 
for  statistical  use, 

(g)  Household 

Household  expenditures  are  divided  into  several  groups. 
The  housekeeping  department  is  responsible  primarily  for 
cleanliness  and  order,  and  its  expenditures  should  be  dis- 
tinguished from  those  for  the  kitchen,  the  laundry,  and  the 
steward's  department,  as  well  as  from  those  for  repairs  of 
buildings,  for  heating,  for  lighting,  etc. ;  for  in  order  to 
make  comparisons  we  must  have  costs  in  rather  detailed 
groups.  The  housekeeping  department  has  charge  of  the 
equipment  and  care  of  dormitories,  dining-rooms,  reception 
rooms,  halls,  etc.,  and  of  the  cleaning  of  the  house  in  gen- 
eral.* 

•  The  order  in  which  departments  are  here  named  is  that  used  in  the  I^ew 
York  plan  of  hospital  accounting,  to  which  reference  will  be  made  hereafter. 
Since  the  author  is  urging  uniformity,  he  has  desired  to  accept  with  as  little 
change  as  possible  any  plan  of  uniformity,  already  in  use,  that  will  produce  the 
desired  results.  The  New  York  plan  is  excellent  as  far  as  it  goes.  Though  the 
order  of  accounts  is  not  of  much  importance,  it  is  of  great  importance  that  in 
any  establishment  the  same  order  be  always  followed  in  all  lists,  records,  etc.; 
for  the  waste  of  time  in  hunting  for  a  desired  figure  when  no  specific  place 
belongs  to  that  figure  is  serious.  A  more  logical  order,  and  that  recommended, 
is  to  list  the  household  departments  as  follows:  (i)  steward's,  (2)  kitchen,  (3) 
housekeeping,    (4)    laundry;   and  that  order  is   followed  in  the  rest  of  the  text. 


22  COST  ACCOUNTING  FOR  INSTITUTIONS 

(h)  Kitchen 

The  kitchen  department  is  concerned  solely  with  the 
preparation  of  food,  and  nothing  which  is  not  a  cost  of 
cooking  should  be  charged  to  that  department,  either  for 
capital  or  for  current  expenses. 

(i)  Laundry 

The  laundry  department  has  so  distinct  a  function  that 
there  is  no  danger  of  confusion  between  it  and  others  if 
only  one  remembers  that  a  charge  is  made  under  good  ac- 
counting not  on  the  basis  of  the  article  with  which  the 
charge  is  connected,  but  on  the  basis  of  the  purpose  which 
it  serves;  for  example,  pails  used  for  scrubbing  about  the 
halls  are  chargeable  to  Housekeeping  Equipment,  pails  used 
in  the  preparation  of  food  are  chargeable  to  Kitchen  Equip- 
ment, pails  used  in  the  laundry  are  chargeable  to  Laundry 
Equipment,  and  pails  used  in  the  store-room  for  handling 
foods  are  chargeable  to  Steward's  Equipment;  and  simi- 
larly so-called  laundry  soap  used  for  general  cleaning  pur- 
poses is  chargeable  to  housekeeping-department  expense, 
soap  used  for  washing  dishes  is  chargeable  to  kitchen- 
department  expense,  and  soap  used  for  laundering  is  charge- 
able to  laundry-department  expense. 

(j)  Steward's  Department 

Just  as  the  kitchen  is  employed  solely  in  the  preparation 
of  food,  so  the  steward's  department  is  concerned  solely 
with  purchase  and  delivery  of  food.  (The  store-room  de- 
livers to  the  kitchen,  the  kitchen  delivers  to  the  household 
department,  and  the  household  department  delivers  to  the 
consumer.)  Steward's  Department  Equipment  is  shown 
as  a  capital  item  on  the  first  half  of  the  balance  sheet,  but 
supplies  of  food  are  carried  among  the  current  items  as 
general  material  on  hand. 


THE   BALANCE   SHEET  23 

(k)  Machinery  and  Tools 

The  account  for  machinery  and  tools  should  record  vir- 
tually all  removable  equipment  not  an  essential  portion  of 
the  buildings  or  of  the  equipment  used  for  professional  or 
household  purposes ;  this  should  be  kept  separate  from  the 
building  and  improvements  because  a  different  rate  of 
depreciation  as  well  as  a  different  rate  of  insurance  is  likely 
to  be  chargeable. 

(1)  Buildings  and  Improvements 

Buildings  and  improvements  should  be  kept  distinct 
from  sites  and  grounds,  for  taxes  may  be  at  a  different 
rate,  and  very  different  factors  of  appreciation  and  depre- 
ciation are  likely  to  affect  values;  this  account  should  in- 
clude the  cost  to  the  institution  (or  the  presumable  value 
if  donated)  of  its  real  property  in  excess  of  the  native 
value  of  the  grounds,  but  should  not  be  written  up  or  in- 
creased in  value  merely  because  the  assessed  or  market 
value  has  appreciated.  Since  the  balance  sheet  for  an  insti- 
tution is  less  an  indication  of  solvency  than  of  what  the 
institution  can  show  for  the  value  entrusted  -to  it,  cost  rather 
than  market  value  is  the  figure  of  real  significance. 

(m)  Sites  and  Grounds 

Sites  and  grounds,  similarly,  should  be  shown  at  cost; 
if  anyone  wishes  to  know  how  far  it  is  true  that  the  insti- 
tution has  property  of  enhanced  value,  he  may  at  any  time 
learn  the  value  of  the  sites  and  grounds  irrespective  of  any 
debit  to  the  account  representing  them  on  the  books ;  but 
an  effort  to  make  the  books  show  such  a  value  would  mean 
either  the  confusion  of  constant  changes  or  else  a  mislead- 
ing figure. 


24  COST  ACCOUNTING  FOR  INSTITUTIONS 

Varying  Purposes  of  Asset  Statements 

It  should  be  noted  that  three  distinct  purposes  of  stating 
assets  are  likely  to  be  at  one  time  or  another  in  the  mind  of 
the  accountant,  and  the  purpose  must  determine  the  form 
of  the  statement.  Ordinarily  the  assets  are  those  of  a 
"going  concern,"  and  the  record  of  property  should  show 
the  cost  of  that  property  to  the  institution — for  only  ac- 
countability for  the  funds  used  need  be  considered  on  the 
books.  Occasionally,  however,  the  institution  needs  to  bor- 
row money,  with  the  property  as  security;  since  here  the 
important  thing  is  not  the  cost,  but  the  probable  realizabil- 
ity  of  the  particular  property,  the  statement  should  put  the 
valuation  at  a  reasonable  sale  price.  Finally,  absolute  sale 
of  the  property  as  a  whole  may  be  contemplated ;  here  the 
value  of  the  property  in  use  is  the  criterion.  Truth  lies  in 
the  proper  relation  of  any  fact  to  other  facts,  and  usually 
cannot  lie  in  a  bald  statement  of  any  fact  by  itself.  For 
this  reason  three  statements  of  assets  for  an  institution  at 
any  time  may  all  be  true,  though  the  figures  vary  widely. 
For  ordinary  purposes,  however,  the  true  statement  is  that 
of  cost,  and  this  is  what  is  recommended  on  books  and  bal- 
ance sheets. 

Summarized  List  of  Capital  Accounts 

Capital  Accounts  for  Institution  Property 
(i)   Administrative  Equipment 

Includes  office  equipment,  such  as  desks,  calculat- 
ing  machines,    typewriters,    telephone    switch- 
boards (if  owned),  etc. 
(2)   Apparatus  and  Instruments 

For  medical  and  surgical  uses  only.  Since  the 
Pathological  Laboratory  and  the  Home  Nurs- 
ing Department  are  likely  to  have  compara- 
tively inexpensive  equipment  of  this  type,  the 


THE   BALANCE    SHEET  25 

amount  for  them  may  well  be  included  here. 
If  their  equipments  are  expensive,  they  should 
have  separate  accounts. 

(3)  Dispensary  Equipment 

(4)  Emergency  Equipment 

This  should  be  kept  separate  only  if  the  work  is 
done  in  distinct  quarters  with  distinct  ap- 
paratus. Otherwise  these  items  are  included  in 
Apparatus  and  Instruments. 

(5)  X-Ray  Equipment 

(6)  Ambulance  Equipment 

(7)  Training  School  Equipment 

(8)  Steward's  Equipment 

Storage  refrigerators,  scales,  trucks,  etc. 

(9)  Kitchen  Equipment 

This  should  include  cost  of  ranges,  steam  tables, 
boilers  (for  cooking),  ice-chipping  machines, 
potato  parers,  kitchen  utensils,  etc. 

(10)  Household  Equipment 

This  should  include  equipment  used  for  dormi- 
tory and  table  purposes  and  for  general  pur- 
poses of  cleanliness — such  as  linen,  beds,  bed- 
ding, crockery,  dormitory  and  dining-room  fur- 
niture, vacuum  cleaners,  etc.  It  is  likely  to  be 
worth  while  to  subdivide  and  show  dormitory, 
dining-room,  and  general  equipment  separately. 

(11)  Laundry  Equipment 

(12)  Machinery  and  Tools 

This  should  include  machinery  and  tools  for  gen- 
eral purposes,  as  boilers,  engines,  motors,  ven- 
tilating fans,  and  mechanics'  tools. 

(13)  Buildings  and  Improvements 

This  is  kept  less  as  an  indication  of  valuation  than 
as  an  indication  of  the  cost  to  the  institution  of 


26  COST  ACCOUNTING  FOR   INSTITUTIONS 

its  property  in  excess  of  the  native  value  of  the 
ground.     Hence  it  should  be  debited   for  the 
cost    of    the    "improvements,"    commonly    so- 
called,  including  plumbing  and  steam-fitting. 
(14)   Sites  and  Grounds 

This  should  register  the  cost  of  the  land  alone. 

Arrangement  of  Balance  Sheet  for  Comparative  Purposes 

The  balance  sheet  should  make  provision  for  an  easy 
comparison  between  the  present  situation  and  that  of  a  year 
ago.  If  the  figures  for  the  last  year  are  placed  at  the  left 
of  such  a  sheet,  with  a  column  for  increase  and  one  for  de- 
crease immediately  follovv^ing,  and  then  the  present  figures 
are  placed  at  the  right  of  the  titles  of  accounts  or  groups 
of  accounts,  the  reader  will  see  as  the  most  conspicuous 
figure  on  the  sheet  the  present  situation,  but  will  find  at 
hand  an  easy  correlation  of  the  present  figures  with  the  old. 

Arrangement  of  Balance  Sheet  as  to  Assets 

The  assets  should  be  divided  into  several  groups.  The 
institutional  property  should  comprise  the  first  group,  and 
should  be  shown  in  more  or  less  detail,  at  least  in  enough 
detail  to  indicate  the  different  types  of  property  owned, 
such  as  sites  and  grounds,  buildings,  furniture  and  fixtures, 
machinery  and  tools,  etc.  The  second  group  should  include 
investments,  which,  in  the  case  of  many  institutions,  would 
comprise  the  endowment.  The  sum  of  these  two  groups — 
that  is,  properties  and  investments — would  constitute  the 
capital  assets  (unless  there  were  certain  cash  funds  destined, 
perhaps,  because  of  restrictions,  for  capital  use).  The  next 
main  group  of  assets  would  be  the  so-called  current  assets, 
comprising  any  accounts  receivable,  supplies  on  hand,  cur- 
rent cash,  and  accrued  or  prepaid  items. 


THE   BALANCE    SHEET  27 

Arrangement  of  Balance  Sheet  as  to  Liabilities 

A  similar  division  should  be  made  for  the  liabilities. 
The  first  capital  liability  for  a  corporation  having  shares 
would  be  capital  stock.  For  an  endowed  institution  it 
would  be  proprietorship,  or  book  value  of  property  above 
debts  and  special  funds.  Then  would  follow  special  funds, 
bonds  and  mortgages  payable,  etc.  The  current  liabilities 
would  be  of  the  ordinary  type,  such  as  bills  payable,  ac- 
counts payable,  and  accrued  items. 

These  things  are  shown,  without  figures,  on  the  sample 
sheet  following  (pages  28  and  29). 

Schedule  of  Furniture  and  Fixtures 

The  supporting  schedules  for  details  should  follow.  The 
first,  schedule  I,  is  a  list  of  equipment  under  the  head  of 
furniture  and  fixtures,  as  shown  (the  form  varying  with 
the  circumstances)  on  page  30. 

These  figures  should  be  obtained  chiefly  by  inventory, 
though  some  items,  like  calculating  machines  and  refriger- 
ators, would  be  valued  by  an  allowance  for  depreciation 
subtracted  from  their  original  cost  or  from  their  last  book 
value.  The  general  treatment  of  depreciation  is  discussed 
on  page  104,  and  on  pages  170  to  174. 

Schedule  of  Investments 

It  is  usually  desirable  for  an  institution  to  report  an- 
nually all  property  owned  by  it  for  investment  purposes. 
This  form  is  intended  to  give  information  regarding  not 
only  the  principal  (the  book  value)  of  such  property,  but 
its  market  value,  the  gross  income  which  it  produces,  any 
allowances  or  expenses  connected  with  its  ownership,  and 
its  final  net  income.  The  bookkeeper  should  clearly  under- 
stand that  any  charges  for  taxes,  insurance,  depreciation, 
etc.,  on  property  held  as  investment,  should  be  entered  not 


28  COST  ACCOUNTING   FOR   INSTITUTIONS 

FORM  A  BALANCE 


Last        In- 

De- 

This 

Year 

crease 

crease 

Year 

Capital  Assets 

Hospital  Properties,  etc. 

Sites  and  Grounds  (0)* 

Buildings  (B) 

Furn.  &  Fixt.  (ATSKRFH) 

(See  Schedule  I,  p.  — ) 

Machinery  &  Tools  (LQ) 

Apparatus  &  Instruments  (IDEXP) 

Ambulances,  Horses  (M) 

Miscellaneous 

Total 

Investments  (Schedule  II,  p.  — ) 

Bonds 

Stocks 

Mortgages  Receivable 

Other  Investments 

Total 

Cash  in  Capital  Fundsf 

Total  capital  assets 
Current  Assets 

Bills  Receivable 

Accts.  Receivable  (Treas.) 

Accts.  Receivable  (Supt.) 

General  matenal  on  hand  (U) 

Cash — current  (Treas.) 

Cash — current  (Supt.) 

Interest  (net  accrued) 

Insurance  prepaid 

Other  prepaid  items 

Miscellaneous 

Total  current  assets 
Grand  Total 

Deficit 

•  The  initials  after  the  names  of  the  capital  asset  items  are  the  symbols  of 
the  various  accounts  representing  the  property.  For  example,  Furniture  and 
Fixtures  should  include  the  equipment  of  the  following  divisions:  Administration, 
Training  School,  Steward's,  Kitchen,  Housekeeping.  The  symbols  are  explained 
on  page  35. 

t  Cash  belonging   to   capital    funds,    awaiting   immediate   investment. 


THE   BALANCE   SHEET 


29 


SHEET 


Last 
Year 


In- 
crease 


De- 
crease 


This 
Year 


Capital  Liabilities 
Capital     Account     (Proprietorship     of 

property    not    assigned    to    special 

funds) 
Special  Funds  (See  Schedule  IH,  page 

-) 
Bonds  Outstanding 
Mortgages  Payable 


Total  capital  liabilities 

Current  Liabilities 

Bills  Payable 
Accounts  Payable 
Advances  by  patients 
Interest  (net  accrued) 
Other  accrued  items 
Miscellaneous 


Total  current  liabilities 

Grand  Total 
Surplus 


30 


COST  ACCOUNTING   FOR   INSTITUTIONS 


Schedule  I 
Furniture  and  Fixtures 


Group 
Total 

Administrative 

Office  Furniture  (desks,  tables,  etc.) 

Office    Devices    (typewriters,    calculating    ma- 
chines, etc.) 

Telephone  Apparatus 
Training  School 

Furniture 

Library 

Charts,  models,  etc. 
Stores 

Refrigerators 

Trucks,  scales,  measures,  etc. 
Kitchen 

Ranges,  boilers,  steam  tables,  etc. 

Machines  (ice-chipping,  potato-paring,  etc.) 

Utensils 
Housekeeping 

Dormitory    Equipment    (tables,    chairs,    beds, 
bedding,  linen,  crockery,  etc.) 

Table  Equipment  (tables,  chairs,  linen,  crockery, 
etc.) 

General  Equipment  (furniture  for  general  use, 
appliances  for  cleaning,  vacuum  cleaners,  etc.) 

» 

Grand  Total 

as  operating  expenses  of  the  institution,  but  as  charges 
against  the  income  of  the  particular  property  held.  For  this 
reason  it  is  desirable  to  maintain  in  the  general  ledger  (or 
in  a  subordinate  investment  ledger)  a  separate  account  for 
the  income  and  for  the  expenses  of  each  piece  of  invested 
property.  Then  complete  record  is  at  hand  and  statistics 
may  be  compiled.     As  is  indicated  in  connection  with  the 


THE   BALANCE   SHEET 


31 


bonds  appearing  on  the  form  shown,  any  bonds  at  a 
premium  must  be  amortized  whenever  interest  payments  are 
received,  in  order  that  their  book  vakie  may  be  reduced  to 
par  at  maturity.  Any  bonds  at  a  discount,  unless  it  is  be- 
lieved that  they  will  not  produce  par  at  maturity,  should  be 
similarly  accumulated,  and  a  sum  should  be  added  to  their 
book  value  sufficient  to  bring  them  to  par  at  maturity. 

Schedule  II 

Investments 


Property 

Book 

Market 

Gross 

Allow- 

Net 

Value 

Value 

Income 

ances 

Income 

Stocks 

Park  Bank 

$9,000 

$13,500 

$710 

$710 

A.  B.  R.  R. 

1,000* 

1,100 

15 

15* 

Bonds 

H.  &  F.  Ry. 

12,543 

13,250 

600 

$55' 

545 

etc. 

etc. 

etc. 

etc. 

etc. 

Mortgages 

etc. 

etc. 

etc. 

etc. 

etc. 

Real  Estate 

House,  16  Bee  St. 

15,000 

1,500 

500^ 

1,000 

Totals 

$62,200 

$64,550 

$4,815 

$1,300 

$3,515 

Less  short-term  holdings 

1,000 

1,100 

15 

15 

Full-term  holdings 

$61,200 

$63,450 

$4,800 

$1,300 

$3,500 

Average  percentage  of  net  income 


3.500 
61,200 


=  5-72%. 


*  Held  for  less  than  a  year. 


Schedule  of  Special  Funds 

The  schedule  of  special  funds  is  intended  to  give  a  sum- 
mary statement  of  the  condition  of  each  fund  in  such  a  way 


*  Amortization   of  premium  on  bonds. 

*  Taxes,    insurance,   depreciation,   etc. 


32 


COST  ACCOUNTING  FOR  INSTITUTIONS 


Q  -3 
a  It 


^ 


CO 


•S  i^  d  35 

I-"  > 


O  ^ 


<u  PQ 


rt    4)    O    3 
-^  >^  H  fo 


3 


3 


•^  6S 


•c 


w 


»5 


c«i 


CO 


^3 

T) 

to 

C5 

n 

TJ 

n 

1 

C 

3 

s^ 

S^ 

<u 

G 

0 

03 

0) 

a 

T) 

1 

c 

3 
a 

lU 

G 

•rt 

-t-> 

c3 

-t-> 

<[> 

c 

a 

?. 

3 

<u 

'1 

rt 

»-i 

CJ 

M 

0 

1 

3 

0 

1 

•c 

1 

•n 

<u 

0) 

Vi 

a> 

G 

G 

Pi  ;:3  t3 

THE   BALANCE   SHEET  33 

that  all  persons  interested  in  the  fund,  as  donors  or  trustees, 
may  learn  exactly  what  has  been  done  with  it  for  the  year 
in  question.  As  in  the  balance  sheet,  the  comparison  with 
the  preceding  year  is  preferably  placed  at  the  left  of 
the  statement,  and  the  items  pertaining  to  the  immediate 
year  at  the  right.  Since  many  even  of  the  capital  funds 
will  have  an  occasional  unexpended  balance,  that  balance 
should  be  reported  in  a  column  by  itself,  and  preferably  the 
amount  of  the  fund  invested  (of  which,  therefore,  the  in- 
come has  been  received)  should  also  show  separately.  This 
gives  for  each  fund  three  possible  figures  for  the  year  in 
question,  namely:  the  amount  from  which  income  was  re- 
ceived, the  unexpended  balance,  and  the  total  of  the  fund. 
The  statement  should  also  show  the  totals  for  each  group 
of  funds — for  instance,  the  total  of  the  funds  restricted  to 
the  purchase  of  hospital  property,  of  the  funds  restricted  to 
investment,  of  the  unrestricted  funds,  etc.  The  total  of  all 
the  groups  will  then  give  the  total  capital  funds.  To  these 
are  appended  the  current  funds  specified,  classified  on  the 
basis  of  any  restrictions  that  may  be  placed  upon  them. 

The  figure  in  the  last  column  is  susceptible  of  proof  in 
three  ways :  it  should  equal  the  last-year  total  plus  the  in- 
crease minus  the  decrease;  it  should  equal  the  amount  this 
year  in  use  plus  the  uninvested  balance;  it  should  equal  the 
total  of  the  individual  funds  of  the  preceding  column. 

Designation  of  Accounts  by  Symbols 

It  is  usually  found  very  convenient,  if  not  absolutely 
necessary,  to  have  symbols  representing  the  various  ac- 
counts, for  then  memoranda  indicating  accounts  to  be 
debited  or  credited  may  be  easily  made  on  various  forms 
and  documents.  The  choice  of  symbols  should  be  carefully 
made,  or  errors  will  arise  from  carelessness  or  confusion. 
Letters,   having  mnemonic   significance,  are  preferable  to 


34  COST  ACCOUNTING  FOR   INSTITUTIONS 

figures.  Those  recommended  for  the  property  accounts  of 
a  hospital  are  shown  below.  Throughout  this  book  much 
emphasis  is  laid  upon  the  symbols  used — not  because  the 
symbol  itself  is  of  consequence,  but  because  classification  of 
accounts  is  of  utmost  importance,  and  here  the  symbolism 
is  the  expression  of  the  classification.  A  knowledge  of  the 
symbol  of  an  account  under  this  plan  instantly  and  auto- 
matically shows  its  place  in  the  general  accounting  scheme. 

Symbols  for  Property  Accounts 

A  single  capital  letter  may  be  used  to  indicate  a  prop- 
erty account,  and  the  letter  will  always  suggest  the  account 
to  one  who  has  once  realized  the  connection  between  the 
symbol  and  the  name  of  the  account.  In  a  few  cases  the 
correspondence  is  not  so  obvious  as  might  be  desired,  but 
in  these  cases  the  natural  symbol  is  required  for  use  in 
another  connection  where  it  is  likely  to  be  in  much  more 
frequent  demand,  and  hence  the  advantage  of  the  mnemonic 
aid  in  that  connection  will  be  greater  than  here.  Or,  if 
deemed  simpler,  to  show  the  relation  of  the  property  sym- 
bol to  the  department  symbol,  a  symbol  may  be  prefixed 
to  the  departmental  symbol.  Since  it  is  usually  unnecessary 
to  distinguish  between  property,  plant,  and  equipment,  we 
may  take  E  (equipment)  as  the  general  symbol  of  a  capital 
account.  If  the  institution  is  one  which  maintains  a  large 
number  of  departments,  symbols  for  the  capital  accounts 
may  well  be  related  in  all  cases  to  the  corresponding  sym- 
bols for  expense  accounts,  for  example,  by  the  prefix  E; 
for  not  enough  single  letters  are  available.  Symbols  by 
both  methods  are  shown  below.  In  the  right  column  are 
given  those  related  more  closely  to  the  expense  symbols. 
(Their  significance  will  be  seen  only  after  the  expense  sym- 
bols have  been  observed — as  explained  on  page  66. ) 


THE   BALANCE   SHEET 


35 


Where  departments  are   few,   the  single  letter  should  be 
used. 


Short  symbol 


Combination  symbol 


A 
B 
D 
E 
F 

H 


K 
L 
M 

N 
O 

P 
Q 

R 

S 
T 
U 

X 


Administrative  Equipment  EA 
Buildings  and  Improvements  EB 
Dispensary  Equipment  EPD 
Emergency  Equipment  EPE 
Dining  Equipment  (F  suggests  feeding,  as  D  is  al- 
ready in  use)  EDHT 
Household  Equipment  (general,  for  dining  and 

dormitory  are  separately  shown)  EDHZ 
Apparatus  and  Instruments  (I  suggests  instru- 
ments, as  A  is  already  in  use)  EPM 
Kitchen  Equipment  EDK 
Laundry  Eqmpment  EDL 
Ambulance  Equipment  (M  suggests  ambulance,  as 

A  is  already  in  use)  EDM 

Home  Nursing  Equipment  EPH 
Sites  and  Grounds  (O  suggests  outside,  as  S  and 

G  are  needed  elsewhere)  EO 

Pathological  Laboratory  Equipment  EDP 
Machinery  and  Tools  (Q  suggests  e^ipment,  as 

M  and  T  are  needed  elsewhere)  EHQ 
Dormitory  Equipment  (R  suggests  rooms,  as  D 

is  already  in  use)  EDHD 

Steward's  Equipment  EDS 

Training  School  Equipment  EDT 
Inventories  of  Material  (U  suggests  a  basket,  for 

stores)  EU 

X-Ray  Equipment  EPX 


Basis  of  Treatment  of  Accounts  Herein 

In  order  to  avoid  confusion,  as  already  suggested,  the 
treatment  of  accounts  in  any  paragraph  in  this  book  is 
based  in  large  part  on  the  sort  of  institution  with  which 


36  COST  ACCOUNTING  FOR   INSTITUTIONS 

the  paragraph  is  primarily  concerned;  since,  however,  the 
chief  type  of  institution  chosen  for  illustration  is  the  hos- 
pital, in  the  paragraphs  on  hospital  accounts  are  discussed 
all  accounts  having  general  application  to  all  institutions, 
as  well  as  those  peculiar  to  hospitals.  Such  are  accounts 
for  the  steward's  department,  the  kitchen  department,  the 
housekeeping  department.  Other  accounts  of  occasional 
use  in  hospitals,  but  of  more  frequent  use  elsewhere,  are 
treated  in  other  paragraphs  which  chance  to  be  devoted  pri- 
marily to  the  accounts  of  other  institutions  (for  example, 
baths,  in  the  paragraphs  devoted  to  accounts  for  clubs). 
Similarly,  educational  institutions  may  need  accounts  pri- 
marily designed  for  clubs  (as  the  accounts  for  tennis-court 
equipment  and  maintenance).  For  other  institutions  than 
hospitals,  therefore,  many  accounts  similar  to  those  already 
discussed  for  hospitals,  or  even  identical,  are  likely  to  be 
required;  and  a  few  accounts  desirable  for  hospitals,  but 
not  mentioned  above,  may  also  be  worth  while.  Only  in 
the  index  is  attempt  made  to  bring  together,  for  all,  or 
any,  types  of  institutions,  all  references  to  the  recom- 
mended accounts.  The  arrangement  of  the  text  is  that 
which  is  believed  to  bring  out  most  clearly  the  principles. 
An  attempt  to  discuss  in  a  connected  passage  all  accounts 
for  each  type  of  institution  would  mean  an  enormous 
amount  of  repetition.  The  hospital  is  taken  here  as  the 
standard  type,  and  variations  from  it  are  discussed  by 
themselves. 

Capital  Accounts  for  Educational  Institutions 

Universities,  colleges,  and  schools  will  require  accounts 
not  even  suggested  in  the  discussion  of  hospital  accounts. 
Such  are  accounts  representing  different  types  of  instruc- 
tion and  facilities  for  study  both  for  students  and  for  in- 
structors.   Below  is  a  list  of  capital  accounts  recommended 


THE   BALANCE   SHEET  37 

(the  list  is  not  necessarily  complete,  but  indicates  the  kind 
of  differentiation  to  be  made).  The  symbol  recommended 
for  each  is  shown. 

The  significance  of  the  general  symbols  is  as  follows : 

E  Property,  plant,  and  equipment  (an  initial  E,  then,  always 
indicates  a  capital  account,  and  the  term  equipment  is 
used  indifferently  for  property,  plant,  and  equipment) 

P      Professional  research 

S      Students'  instruction 

The  symbols  for  subdivision  are  in  the  main  obvious, 
but  a  few  which  must  be  somewhat  arbitrary  (because  the 
letters  naturally  to  be  applied  are  already  in  use  elsewhere) 
are  as  follows: 

B     Books  (for  libraries) 

G     Ground  (for  students  on  the  ground  or  in  residence) 

The  following  is  the  list  of  capital  accounts : 

ESG  Equipment  for  oral  instruction  to  students  in  residence 
ESE   Equipment  for  instruction  through  university  extension 
ESC  Equipment  for  instruction  by  correspondence 
ESL   Equipment  of  laboratories  devoted  to  the  use  of  students 
(including  libraries  and  collections  in  connection  there- 
with, but  not  those  for  general  use) 
EPL  Equipment  of  laboratories  for  research  work  by  the  mem- 
bers of  the  teaching  staff  (or  by  special  investigators) 
ESB   Libraries  for  the  general  student  body  (not  in  connection 
with  laboratories,  and  not  especially  for  research  by 
members  of  the  teaching  staff  or  by  special  inves- 
tigators) 


38  COST  ACCOUNTING  FOR   INSTITUTIONS 

It  may  be  worth  while  to  subdivide  this  account  as 
follows: 

ESBB  Books  (not  including  periodicals  or  musical 
scores) 

ESBU    Pamphlets 

ESBP  Periodicals,  bound  and  unbound,  other 
than  newspapers 

ESBN    Newspapers,  bound  and  unbound 

ESBG    Maps  and  charts 

ESBM   Musical  scores,  rolls,  and  records 

ESBA    Photographs,  lantern  slides,  prints,  etc, 

ESBQ  General  equipment,  for  storage,  adminis- 
trative, and  delivery  purposes 

The  amount  entered  to  the  library  accounts  should 
be  in  all  cases,  except  equipment,  the  cost  of  what 
is  added.  Replacement  and  rebinding  of  books 
lost  or  worn  is  not  a  capital  charge,  but  a  running 
expense,  whereas  additions,  so  long  as  they  are  avail- 
able for  use,  are  what  the  library  has  to  show  for 
its  funds.  Depreciation  and  appreciation  are  be- 
yond anyone's  power  to  estimate  in  any  important 
library,  and  may  be  disregarded.  Libraries  for 
which  no  capital  accounts  have  been  kept  in  the  past 
may  be  roughly  represented  on  the  books  on  the 
basis  of  a  fair  average  estimated  cost  per  volume 
— not  for  the  purpose  of  valuing  the  present  library 
(for  such  a  figure  might  be  an  absurdity),  but  in 
order  that  there  may  be  a  point  of  departure,  so 
to  speak,  for  watching  its  future  progress.  Gifts 
should  be  appraised,  and  the  value  should  be  en- 
tered to  the  capital  account  and  credited  to  an 
account  for  Library  Gifts. 

EPB  Libraries  for  the  use  of  the  teaching  staff  or  of  special 
investigators  engaged  in  research 

ESM  Museums  and  other  permanent  exhibitions  (not  in  con- 
nection with  laboratories) 


THE   BALANCE   SHEET 


39 


ESO     Equipment  of  observatories  used  by  students 
EPO     Equipment  of  observatories  for  research  by  members  of 
the  teaching   staff  or  by   special   investigators.     It 
might  be  worth  while  to  subdivide  this  account  as 
follows: 

EPOA  Astronomical  apparatus 
EPOP   Photographic  apparatus 
EPOB   Books,  maps,  charts,  etc. 
EPOQ  General  equipment 

EHH  Equipment  in  public  halls  (pianos,  organs,  scenery, 
etc.).  The  first  H  of  the  symbol  indicates  general 
"house  property." 

So  far  as  universities,  colleges,  and  schools  afford  to 
their  residents  facilities  similar  to  those  afforded  by  clubs, 
hotels,  etc.,  to  the  accounts  above  named  will  be  added 
certain  departmental  accounts  indicated  below. 

Equipment  Accounts  for  Hotels  and  Clubs 

Hotels  and  clubs  would  have  to  a  certain  extent  the 
same  accounts  as  hospitals  and  educational  institutions. 
For  example,  EDS,  steward's  equipment,  and  EDK.  kitchen 
equipment,  would  be  the  same.  A  library,  however,  would 
be  designated  EDB  (since  D  indicates  a  department  of  ac- 
tivity, and  only  one  type  will  be  maintained),  rather  than 
ESB  or  EPB,  and  an  exhibition  EDM.  In  addition,  the 
accounts  indicated  below  are  likely  to  be  necessary. 

The  departmental  symbols  shown  for  this  group  of  ac- 
counts are  usually  suggestive  of  the  initial  letters  of  the  de- 
partments. The  following,  however,  are  more  or  less  arbi- 
trary; but  they  are  in  each  case  made  necessary  by  some 
other  use  of  the  symbol  which  would  naturally  be  used  in 
this  connection,  and  each  suggests  a  word  connected  with 
the  department  function. 


40  COST  ACCOUNTING  FOR  INSTITUTIONS 

A  Boats  (suggesting  aquatics) 

F  Carting  (suggesting  freight) 

I  Gymnasium   (suggesting,  by  its  shape,  straightness  and 

setting-up  exercises) 

J  Driving  (suggesting  Jehu) 

O  BowHng  (by  its  shape  suggesting  a  ball) 

Q  Cards  (suggesting  queen) 

R  Billiards  (suggesting  rubber  and  cushions) 

V  Golf  (suggesting,  by  its  shape,  an  inverted  tee) 
W  Baths  (suggesting  water) 

Y  Bar  (suggesting  the  shape  of  a  wine  glass) 

The  following,  then,  is  a  list,  with  symbols,  of  equip- 
ment accounts  recommended  for  hotels  and  clubs : 

EDA  Equipment  for  the  department  of  boats  (This  should  in- 
clude the  cost  of  boat-houses,  boats,  canoes,  laimches, 
etc.) 

EDC    Equipment  for  the  department  of  cigars 

EDE    Equipment  for  entertaiimients  (properties,  etc.) 

EDF  Equipment  for  the  department  of  transportation  (in- 
cluding cost  of  draught  horses,  wagons,  harnesses, 
etc.,  for  cartage  and  delivery) 

EDG  Equipment  for  the  department  of  garage  (including  cost 
of  automobiles  and  all  equipment  connected  with 
their  use) 

EDI     Equipment  of  gymnasium 

EDJ  Equipment  of  stable  (including  the  cost  of  horses,  horse- 
drawn  vehicles,  harnesses,  blankets,  etc.,  for  driving 
or  livery  purposes,  but  not  including  the  cost  of  such 
equipment  for  cartage  or  delivery) 

EDN    Equipment  for  the  department  of  news-stands 

EDO    Equipment  of  bowling  alleys 

EDQ    Equipment  of  card  rooms 

EDR    Equipment  of  billiard  rooms 

EDT  Equipment  for  the  department  of  tennis  (This  should 
include  the  cost  of  alterations  of  land  which  serve  the 
ptirpose  of  tennis  alone  and  do  not  add  to  the  value  of 


THE   BALANCE   SHEET 


41 


the  land  for  general  use.  The  cost  of  special  equip- 
ment, such  as  nets — center,  side  and  back — should  be 
entered  here.  No  institution  is  likely  to  need  this 
symbol  for  both  a  tennis  department  and  for  a  training 
school  for  nurses.  Hospitals  maintaining  courts  for 
doctors  and  nurses  would  hardly  find  a  separate  ac- 
count worth  while.  Sanatoria,  if  they  had  a  training 
school  for  nurses,  might  use  symbol  EDX  for 
tennis.) 

EDV  Equipment  for  the  department  of  golf  (the  cost  of  tees, 
putting  greens,  artificial  hazards,  shelters,  etc.,  and  all 
equipment  or  improvements  on  the  land  which  serve 
golf  purposes  and  would  not  increase  the  value  of  the 
land  for  general  use.  Grading  and  the  cultivation  of 
fair  greens  may  be  deemed  an  addition  to  the  general 
value  of  real  estate.) 

EDW  Equipment  for  the  department  of  baths  (This  includes 
the  cost  of  all  the  equipment  for  swimming  pools, 
Turkish  baths,  vapor  baths,  electric  or  violet-ray 
baths,  and  other  therapeutic  baths.  This  account 
should  be  kept  in  hospitals  maintaining  such  a 
department.) 

EDY    Equipment  for  the  bar 

In  many  institutions,  having  but  few  departments,  these 
symbols  could  be  shortened  to  a  single  letter.  In  every 
case  above,  the  E  is  retained  to  show  that  the  account  is 
for  capital  items,  and  the  D  is  retained  to  show  that  it  rep- 
resents capital  for  a  department — as  distinguished  from 
property  or  capital  independent  of  departmental  use.  For 
example,  EA  is  administrative  equipment,  but  EDA  is 
aquatic  equipment ;  EO  is  sites  and  grounds,  but  EDO  is 
bowling  equipment.  The  titles  of  accounts  given  above  are 
often  long  and  awkward  in  order  to  suggest  the  signifi- 
cance (as  a  mnemonic  aid)  of  the  symbol.  In  use,  their 
shortening  is  obvious. 


42  COST  ACCOUNTING  FOR   INSTITUTIONS 

Balance  Sheet  for  Institutions  Generally 

The  balance  sheet  for  educational  or  other  institutions 
would  not  be  essentially  different  in  form  from  that  shown 
on  page  28.  The  grouping  of  property  accounts  would 
be  somewhat  different,  however.  The  costs  of  equipment 
for  purposes  of  instruction,  for  example,  would  preferably 
form  one  group.  Similarly,  for  clubs  and  hotels,  the  costs 
of  equipment  for  outdoor  or  athletic  purposes  would  form 
a  group  by  itself. 


CHAPTER  III 

THE    STATEMENT    OF    FINANCIAL    TRANSACTIONS    FOR 

THE    YEAR 

The  statement  which  is  of  most  importance  in  giving 
a  summary  view  of  the  transactions  of  any  business  organi- 
zation for  any  particular  period  is  the  statement  of  income. 
For  institutions  which  are  not  primarily  profit-making,  how- 
ever, the  common  type  of  income  statement  is  not  likely  to 
be  quite  satisfactory.  A  complete  statement  of  transactions 
should  combine  capital  and  revenue  items,  but  should  do 
this  without  confusing  them.  Several  related  schedules 
may  well  supersede  the  single  statement  of  income.  It  is 
obvious  that  institutions  having  several  sources  of  income 
and  compelled  to  meet  several  kinds  of  expense  should  show 
how  far  any  of  the  kinds  of  income  are  adequate  to  take 
care  of  the  expense  connected  with  them. 

Earnings  and  Endowments 

In  a  hospital,  for  example,  the  first  fact  we  wish  to  know 
is  how  far  the  earnings  from  the  service  of  patients  are 
adequate  to  pay  running  expenses.  If  we  show  all  items 
connected  with  the  care  of  patients  in  a  schedule  by  them- 
selves, which  we  may  call  the  "schedule  of  earnings,"  the 
resulting  surplus  or  deficit  gives  us  the  desired  figure. 

We  next  wish  to  know  how  far  the  income  from  the 
endowment  of  the  institution  is  adequate  to  make  up  any 
deficit  in  its  direct  earnings,  or  how  far  it  will  add  to  the 
surplus  of  earnings.     So  the  surplus  or  deficit  of  earnings, 

43 


44  COST  ACCOUNTING   FOR   INSTITUTIONS 

from  the  first  schedule,  should  be  carried  down  to  the  sec- 
ond schedule — which  we  may  call  the  "schedule  of  endow- 
ment income."  Any  surplus  or  deficit  remaining  after  in- 
come from  endowment  has  been  considered  is  the  net  re- 
sult of  the  internal  affairs  of  the  hospital. 

Subscriptions 

For  most  hospitals,  two  other  sources  of  income  remain 
— annual  subscriptions  from  charitable  organizations  and 
individuals,  and  legacies.  It  happens  that  subscriptions  are 
likely  to  maintain  a  fairly  steady  level,  and  may  with  some 
degree  of  certainty  be  counted  upon  by  the  administrative 
officers  to  meet  running  expenses.  Legacies,  on  the  other 
hand,  are  extremely  variable,  and  may  run  very  high  in 
seasons  of  abnormal  death  rate  among  the  well-to-do,  and 
may  run  very  low  even  in  extremely  prosperous  seasons  if 
these  seasons  happen  to  be  seasons  of  good  health.  For 
this  reason  it  seems  desirable  to  make  a  distinction  be- 
tween these  two  kinds  of  income,  and  to  provide  separate 
schedules  for  them.  If  we  bring  down  the  surplus  or  deficit 
from  our  second  schedule,  or  "endowment  income,"  into  a 
third  schedule,  which  we  may  call  "normal  current  income," 
we  have  a  final  surplus  or  deficit  resulting  from  what  may 
be  considered  the  normal  transactions  of  the  period  under 
review. 

Legacies  and  Other  Funds 

This  figure,  in  turn,  should  be  carried  into  the  fourth 
schedule,  which  should  cover  legacies.  Here  we  enter  a 
field  which  may  be  either  capital  or  revenue.  This  sched- 
ule will  show  the  final  result  for  the  year  as  affected  not 
only  by  normal  income  and  expense,  but  by  the  two  transi- 
tory and  unreliable  elements,  current  and  capital  legacies. 
If  any  legacies  have  been  received  subject  to  the  restriction 


STATEMENT    OF   FINANCIAL    TRANSACTIONS         45 

that  they  shall  be  used  for  capital  purposes  only,  it  is  hardly 
feasible  to  consider  them  as  of  the  same  class  with  unre- 
stricted legacies,  and  theoretically  they  should  not  go  into 
a  schedule  which  includes  current  items;  but  since  most 
persons  who  are  interested  to  watch  contributions  to  an  in- 
stitution of  this  sort  are  not  familiar  with  accounts,  and  are 
therefore  likely  to  expect  to  see  even  capital  legacies  placed 
with  the  income  for  the  year,  it  is  desirable  to  place  them 
in  this  part  of  the  statement — though  they  should  be  desig- 
nated separately.  This  fourth  schedule,  since  it  is  not 
strictly  for  either  income  or  capital,  but  combines  all  kinds 
of  ultimate  receipts,  should  distinguish  by  separate  columns 
those  for  current  use  from  those  for  capital  use. 

Detailed  Schedules 

To  these  schedules  may  be  appended  details  for  pur- 
poses of  comparison — one  institution  with  another  or  one 
year  with  another;  but  anyone  who  has  attempted  to  make 
comparisons  for  himself  either  within  an  institution  or  be- 
tween institutions  will  recognize  the  importance  of  the  sum- 
mary statements,  even  though  details  be  not  shown. 

Detailed  Examination  of  Schedules 

Let  us  now  examine  these  statements  in  detail.  The 
forms  given,  on  pages  51-54,  are  for  a  hospital.  Provision 
is  made  there  for  virtually  all  contingencies.  Never  could 
all  of  them  arise  at  the  same  time  in  any  institution,  but  the 
titles  are  shown  for  the  sake  of  completeness.  Virtually 
the  same  sort  of  items  would  appear  for  any  other  type  of 
institution,  though  the  titles  might  be  changed  in  certain 
cases — as  with  "State  appropriation"  substituted  for  "Sub- 
scriptions from  normal  sources." 


46  COST  ACCOUNTING   FOR   INSTITUTIONS 

Schedule  A — Earnings 

In  schedule  A  are  shown  only  those  items  of  earning 
and  of  expense  which  result  from  the  conduct  of  the  insti- 
tution's prime  function — the  care  of  patients.  (For  a  school 
or  college  this  would  be  the  education  of  students,  and  for 
a  club  or  hotel  the  entertainment  of  guests.)  Distinction 
should  be  made  clearly  between  earnings  and  income,  for 
the  latter  term  is  commonly  used  to  designate  not  only 
earnings  from  the  chief  business  of  the  enterprise,  but  also 
interest  and  dividends  on  bonds  and  stocks  held  and  mis- 
cellaneous income  from  chance  profits.  Any  gain  arising 
from  sources  not  directly  related  to  the  year  under  consider- 
ation should  appear  on  neither  the  earnings  account  nor 
the  income  account,  but  on  the  fourth  schedule.  Deprecia- 
tion must  be  counted  as  an  expense  of  conducting  business, 
and  is  therefore  chargeable  against  earnings  on  this  first 
schedule.  In  view  of  the  fact  that  very  different  policies 
with  regard  to  the  amount  of  depreciation  chargeable  in 
any  year  prevail  in  different  establishments,  however,  it  is 
desirable  to  show  depreciation  as  a  separate  item ;  for  it 
would  be  unfortunate  for  any  institution  to  have  its  super- 
intendent judged  by  the  total  charge  for  expenses,  when 
that  charge  included  very  liberal  provisions  for  deprecia- 
tion, in  comparison  with  the  superintendent  of  another  in- 
stitution in  which  the  provision  for  depreciation  is  very 
scant.  For  these  reasons,  on  the  revenue  account  deprecia- 
tion is  shown  in  the  accompanying  form  as  a  deduction 
from  an  initial  surplus  or  deficit,  and  is  therefore  excluded 
from  the  first  figure  of  expenses.  Obviously  if  the  revenue 
from  the  main  activity  of  the  institution  is  in  excess  of  all 
the  expenses,  the  words  "Total  deficit"  on  the  form  which 
follows  will  be  canceled,  and  "Net  surplus"  will  stand  as  the 
title;  and  if  the  initial  surplus  is  less  than  the  amount  of 
the  depreciation,  the  final  designation  of  the  amount  of 
schedule  A  will  be  "Net  deficit." 


STATEMENT   OF   FINANCIAL   TRANSACTIONS         47 

Schedule  B — Endowment  Income 

The  purpose  of  schedule  B  is  to  show  not  merely  the 
figures  for  income,  but  also  the  rate  of  return.  In  view  of 
the  fact  that  some  investments  may  have  been  made  in  the 
progress  of  the  year,  and  therefore  have  borne  interest  for 
less  than  a  year,  one  cannot  draw  exact  conclusions  with 
regard  to  the  average  rate  of  return  unless  one  knows  how 
much  investment  has  borne  interest  for  a  short  period. 
Schedule  B  accordingly  shows  as  its  first  item  the  invest- 
ment previously  reported  and  unchanged,  and  gives  in 
parentheses  the  average  rate.  The  next  item  is  the  interest 
charged  by  the  corporation,  and  therefore  earned  by  the 
corporation,  on  property  used  in  the  departments  and  shown 
on  the  statement  of  detailed  operating  costs  under  the  vari- 
ous departments.  The  income  from  new  and  changed  in- 
vestments, which,  of  course,  is  for  less  than  a  year,  is  sep- 
arately shown.  From  the  total  of  this  income  from  invest- 
ments and  property  must  be  subtracted  any  deficit  of  earn- 
ings as  shown  by  schedule  A,  if  any  has  occurred ;  or  to 
these  will  be  added  any  surplus  of  earnings.  The  cancella- 
tion of  the  unnecessary  words  on  the  schedule  makes  the 
final  figure  clear. 

Schedule  C — Normal  Current  Income 

Schedule  C  is  likely  to  be  most  useful  if  it  covers  not 
only  all  items  of  gain  from  earnings  and  from  investments, 
but  also  all  sums  received  from  outside  in  the  way  of  gifts 
or  legacies  applied  to  current  uses  and  normal  in  amount. 
Since  the  purpose  of  schedule  C  is  to  show  the  ultimate  re- 
sult of  the  year's  work  so  far  as  tlie  balance  of  income  and 
expense  is  concerned,  and  since  many  institutions  receive 
frequent  legacies  not  only  available  for  current  expenditure 
but  even  intended  by  the  donors  to  apply  to  that  use,  the 
result  of  the  year's  operations  is  not  fairly  shown  unless  the 
amount  of  such  gifts  and  legacies  actually  utilized  for  cur- 


48  COST  ACCOUNTING   FOR   INSTITUTIONS 

rent  purposes  is  shown  on  the  final  schedule  of  normal  cur- 
rent income  and  expenditure.  The  final  figure  of  schedule 
C  indicates  whether  the  institution  is  running  behind  on  all 
its  normal  current  income,  from  whatever  source,  or  is  ac- 
cumulating- a  fund  available  either  for  expansion  or  for  in- 
creased investment.  Institutions,  unlike  most  commercial 
and  manufacturing  enterprises,  are  likely  to  have  funds 
which  may  be  treated  as  either  capital  or  current;  for  they 
are  not  primarily  engaged  in  making  and  distributing  profit ; 
and  hence  they  have  not  the  same  need  of  distributing 
evenly  throughout  the  years  any  unlabeled  items  of  income 
and  capital.  Since  expenses  need  not  necessarily  be  met  out 
of  earnings,  and  since  some  contributions  may  be  either 
income  or  capital,  a  certain  overlapping  of  what  in  ordi- 
nary business  would  be  deemed  either  pure  income  or  pure 
capital  is  bound  to  occur.  This  overlapping  should  be  indi- 
cated so  that  one  in  reading  the  accounts,  or  at  least  in  read- 
ing the  final  published  statement,  may  see  both  what  is  the 
gross  increase  in  the  capital  of  the  enterprise,  and  how 
much  of  those  receipts  which  under  certain  conditions  might 
have  been  added  to  capital  have  been  actually  absorbed  for 
current  use.  The  balance  sheet,  as  previously  indicated, 
shows  annually  the  condition  of  all  capital  funds;  but  it 
cannot  show  how  much  property  possibly  available  to  add 
to  capital  has  been  absorbed  for  other  purposes.  Schedule 
C  should  show  the  actual  absorption  of  legacies  for  current 
uses.     Corporation  expenses  should  be  reported  here. 

Schedule  D — Special  Items:  (a)  Available  Funds 

Schedule  D  is  meant  to  be  a  statement  of  the  financial 
transactions  for  the  year,  both  capital  and  income.  It  be- 
gins with  the  balance  brought  down  from  schedule  C.  If 
schedule  C  has  not  produced  either  a  mere  cancellation  of 
receipts  and  expenditures  on  one  hand  or  a  deficit  on  the 


STATEMENT    OF   FINANCIAL    TRANSACTIONS         49 

Other,  the  surplus  of  normal  current  income  is,  of  course, 
available  to  increase  capital,  and  therefore  it  may  be  held 
either  for  current  use  in  the  subsequent  year  or  as  a  fund 
laid  aside  and  destined  for  capital  investment.  The  sched- 
ule shown  below^  indicates  how  much  surplus  of  normal  cur- 
rent income  is  destined  for  each  of  these  two  possible  uses. 
The  second  and  third  columns  of  the  schedule  are  intended 
to  separate  the  current  from  the  capital  items ;  and  there- 
fore these  amounts,  resulting  from  a  division  of  the  surplus 
of  normal  current  income  just  indicated,  are  not  only 
shown,  with  their  total,  in  the  first  column,  but  are  extended 
into  the  appropriate  other  columns.  As  above  indicated, 
legacies  and  other  special  contributions  may  be  restricted  to 
investment  for  capital  endowment,  they  may  be  available 
for  the  purchase  of  property,  or  they  may  be  available  for 
current  expenses.  The  sum  of  these  constitutes  the  amount 
which  it  is  possible  to  add  to  capital ;  but  if  any  part  of  this 
sum  is  applied  to  current  expenses,  the  balance  only  will  be 
extended  into  the  capital  column  of  the  schedule,  and  the 
sum  deflected  to  current  expense  will  appear  in  the  current 
column  and  will  correspond  with  the  sum  so  named  on 
schedule  C. 

Occasionally  an  institution  disposes  of  some  of  its  prop- 
erty at  a  profit.  This  gain  is  clearly  not  a  gain  of  income  in 
the  ordinary  sense,  because  it  does  not  arise  from  circum- 
stances of  the  current  year.  It  should  be  considered  a  cap- 
ital addition,  although,  of  course,  unless  there  were  a  re- 
striction on  the  original  property,  it  may  be  applied  to  cur- 
rent uses  if  need  arises.  Similarly,  gains  may  arise  from 
change  of  investment.  These,  when  added  to  the  possible 
capital  additions  already  indicated,  show  all  possible  addi- 
tions to  capital  for  the  year.  It  is  likely  to  happen,  how- 
ever, that  some  capital  items  have  depreciated,  and  that, 
although  sums  are  available  for  capital  increase,  it  is  wise 


50  COST  ACCOUNTING  FOR   INSTITUTIONS 

to  devote  them  to  making  good  capital  losses.  Wherever 
this  has  occurred,  it  is  obvious  that  the  increase  in  property 
or  investment  shown  by  the  balance  sheet  will  not  be  so 
great  as  the  increase  in  possible  additions  to  capital  shown 
on  schedule  D.  To  explain  any  such  discrepancy,  it  is  de- 
sirable that  those  sums  necessary  to  make  good  losses  shall 
be  shown  directly  on  schedule  D,  and  thus  indicate  the  de- 
duction from  items  of  possible  addition  to  capital.  It  is  true 
likewise,  of  course,  that  capital  property  may  have  increased 
because  the  institution  has  borrowed  to  make  purchases.  If 
that  has  occurred,  the  increase  in  outstanding  debt  should 
appear  on  schedule  D  as  a  means  of  showing  the  total 
amount  of  funds  to  be  accounted  for.  Then  any  changes 
on  the  balance  sheet  will  be  explained  by  reference  to  sched- 
ule D — unless  those  balance-sheet  changes  have  arisen  from 
a  mere  shift  of  one  kind  of  assets  for  another,  or  from  a 
shift  of  one  kind  of  liability  for  another. 

Schedule  D — Special  Items:  (b)   Disposition  of  Funds 

The  second  half  of  schedule  D  is  intended  to  show  how 
the  institution  has  accounted  for  the  funds  which  the  first 
half  of  schedule  D  shows  it  responsible  for.  If  the  normal 
current  income  (schedule  C)  has  shown  a  deficit,  obviously 
a  part  of  the  funds  available  for  current  use  and  shown  on 
the  upper  half  of  schedule  D  will  be  absorbed  in  making 
good  this  deficit.  Any  additions  to  institution  property  and 
to  institution  investment  will  also  absorb  certain  portions  of 
the  increase  of  funds  available  for  capital  use;  and  if  any 
shrinkages  of  either  property  or  investment  are  to  be  made 
up  from  capital  funds  these  will  also  show.  It  will  be  no- 
ticed that  those  sums  necessary  to  make  good  losses  are 
shown  on  both  halves  of  schedule  D ;  since  it  is  desirable  to 
show  the  details  regarding  the  use  made  of  capital  funds 
available,  they  must  appear  on  one  side  of  the  schedule,  and 


STATEMENT   OF   FINANCIAL   TRANSACTIONS         51 

FORM  B 

Statement  of  Financial  Transactions  for  the  Year 

Schedule  A — Earnings 

Expenses,  excluding  depreciation  (see  Schedule  IV,  page  — ) ....  $245,000 
Revenue  from  hospital  sources  (see  Schedule  V,  page  — ) 100,000 

Initial  [surplus]  deficit '. . . .  $145,000 

Depreciation  (see  Schedule  IV,  page  — ) 5,ooo 

Total  [Net]  [surplus]  deficit  of  earnings    (see    Schedule 

VI,  page  — ) $150,000 

Schedule  B — Endowment  Income 

Income  from  investments  previously  reported,  and  unchanged 

(5- 12%)* $85,000 

Interest  charged  to  institution  departments  on  their  equipment 

(3%)t 10,000 

Income  from  new  or  changed  investments  (parts  of  year  only) . . .        5,000 

Total $100,000 

[Surplus]  Required  to  make  good  deficit  of  earnings  (Schedule  A).    150,000 

[Total  surplus]  Net  deficit  of  endowment  income $50,000 

Schedule  C — Normal  Current  Income 

Subscriptions  from  normal  sources  (see  Schedule  VII,  page  — ) .  .    $80,000 
Legacies  and  special  donations  used  for  current  expenses 00,000 

Total $80,000 

[Surplus]  Required  to  make  good  deficit   of  endowment   income 

(Schedule  B) 50,000 

Balance $30,000 

Corporation  expenses 5,000 

Net  [Total]  surplus  [deficit]  in  normal  current  income  ....    $25,000 

•This  does  not  include  income  from  any  funds  of  which  the  income  is  not  available  for 
current  use. 

t  The  reason  for  charging  interest  to  departments  is  given  on  page  io3. 


52 


COST   ACCOUNTING  FOR  INSTITUTIONS 


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STATEMENT  OF  FINANCIAL  TRANSACTIONS 


53 


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54 


COST  ACCOUNTING  FOR  INSTITUTIONS 


unless  they  appear  also  on  the  other  side  the  schedule  will 
show  a  discrepancy  between  the  sums  to  be  accounted  for 
and  the  disposition  of  such  sums.  Any  sums  destined  for 
capital  use,  but  not  yet  invested,  will  appear  as  a  balance,  in 
the  capital  column,  as  cash  with  the  treasurer.  Any  sums 
spent  in  paying  off  outstanding  debt  will  appear  also  in  the 
capital  column,  for  they  explain  the  disposition  of  capital 
sums  available,  and  paying  debt  is  the  same  as  making  in- 
vestment. Any  sums  destined  for  current  use  and  yet  un- 
expended appear  in  the  current  column  as  increase  of  cur- 
rent cash  with  the  treasurer. 


FORM  C 


Summary  of  Financial  Transactions  for  the  Year 


Surplus  of  normal  current  income 

Legacies  and  other  special  contributions 

Net  additions  to  outstanding  debt 

Net  shrinkage  in  total  capital  in  institution  property 

Net  shrinkage  in  total  capital  investments 

Net  shrinkage  in  uninvested  capital  funds 

Net  shrinkage  in  available  current  funds  * 

To  be  accounted  for 

Deficit  in  normal  current  income 

Expended  in  making  good  losses  of  capital 

Net  shrinkage  in  outstanding  debt 

Net  additions  to  capital  in  institution  property 

Net  additions  to  capital  investments 

Net  additions  to  uninvested  capital  funds 

Net  additions  to  available  current  funds  f 


$25,000 
40,000 

$65,000 

$10,000 

15,000 
20,000 
10,000 
10,000 

$65,000 

Accountability  satisfied 


•  This  may  have  a  negative  origin ;  that  is,  it  may  be  due  to  a  larger  deficit 
on  the  balance  sheet   than   that   of  a  year   ago. 

t  This  may  have  a  negative  origin;  that  is,  it  may  be  due  to  a  smaller  deficit 
on  the  balance  sheet  than  that  of  a  year  ago. 


STATEMENT   OF   FINANCIAL   TRANSACTIONS         55 

Summary  of  Financial  Transactions 

A  summary  of  the  financial  transactions  for  the  year 
should  show  the  total  changes  in  each  group  of  property, 
investments,  and  liability,  without  indicating  the  details.  In 
form,  it  should  show  a  list  of  sums  to  be  accounted  for,  and 
a  list  of  items  which  serve  that  accountability.  The  two 
must  balance,  as  shown  on  page  54.  The  first  three  items 
on  the  first  half  of  the  sheet  show  direct  receipts,  and  there- 
fore must  be  explained  in  the  second  half.  The  other  four 
items  show  either  consumption  of  property,  through  opera- 
tions, or  exchange  of  property :  consumption  through  oper- 
ations shows  in  either  a  reduced  surplus  of  normal  current 
income,  or  an  increased  deficit;  and  exchange  of  property 
must  show  in  one  of  the  last  six  items  of  the  second  half  of 
the  sheet.  In  a  similar  way,  any  item  on  the  second  half  of 
the  sheet  is  explainable  by  some  item  or  group  of  items  on 
the  first  half.  So  the  statement  necessarily  balances  and 
summarizes  the  situation  for  the  year. 

Detailed  Statement  of  Expenses 

Schedule  IV,  the  statement  of  expenses  for  the  institu- 
tion, is  shown  in  Chapter  VII,  Its  construction  is  the  chief 
bookkeeping  task  of  the  institution,  and  therefore  it  may 
well  have  treatment  by  itself. 

Detailed  Statement  of  Earnings 

It  is  important  that  not  only  expenses  but  income 
shall  be  subdivided  so  as  to  show  the  result  of  operations 
for  each  type  of  service.  In  order  that  this  may  be  done, 
numerous  revenue  accounts  should  be  established.  Schedule 
V  provides  for  the  statement  of  such  income  accounts  in 
the  form  recommended  for  an  annual  report.  The  figure 
for  the  present  year  is  shown  at  the  right,  in  a  column 
standing  out  distinctly  by  itself,  and  the  figures  for  last 


56  COST  ACCOUNTING  FOR  INSTITUTIONS 

Schedule  V 
Revenue  from  Institution  Sources 


Last 

In- 

De- 

This 

Year 

crease 

crease 

Symbol 

Year 

Board   of   patients   in   private 

rooms 

IRBP 

Board  of  patients  in  wards 

IRBW 

Special  physicians'  fees  earned 

IPSD 

Special  nurses'  fees  earned 

IPSN 

Special  orderlies'  fees  earned 

IPSO 

Special  laundry  charges  earned 

IDL 

Profit  on  medical  and  surgical 

supplies  sold 

IPM 

Dispensary  fees  received 

IPD 

Emergency  fees  received 

IPE 

Home  nursing  fees  received 

IPH 

X-ray  service  fees  earned 

IPX 

Ambulance  fees  earned 

IDM 

Pathological     laboratory     fees 

earned 

IDP 

Miscellaneous  earnings 
Total  earnings 

IZ 

year,  with  the  increase  or  decrease  shown  by  the  present 
year,  are  at  the  left.  Care  should  be  taken  that  no  income 
from  these  sources  be  credited  to  expense  accounts,  for  in 
that  case  both  expense  and  income  will  be  misrepresented. 
Sums  given  to  the  institution  by  outside  organizations 
should  not,  on  the  other  hand,  be  credited  to  these  income 
accounts,  for  such  credit  confuses  the  earnings  of  the  insti- 
tution, from  work  performed,  with  benefactions  granted  to 
it.  Such  contributions  should  be  credited  to  the  contribu- 
tion account,  and  in  no  way  affect  the  statement  of  earn- 
ings. If,  on  the  other  hand,  contribution  is  made  to  pay  for 
specific  service  rendered  to  an  individual,  as  for  service 
rendered  to  a  patient  who  otherwise  would  be  carried  as  a 


STATEMENT   OF   FINANCIAL  TRANSACTIONS 


57 


free  patient,  such  amount  should  be  credited  to  income,  be- 
cause it  is  not  a  general  gift,  but  is  either  for  the  benefit 
of  the  individual  or  is  payment  for  a  specific  public  service 
rendered.  Since  the  purpose  of  accounting  is  to  distinguish 
not  only  the  cost  of  various  kinds  of  outgo,  but  the  yield  of 
various  sources  of  income,  to  confuse  on  the  books  a  pay- 
ment made  for  a  specific  service  rendered  to  an  individual 
and  a  general  contribution  for  the  operation  of  the  institu- 
tion as  a  whole  is  to  misrepresent  the  relation  of  earnings 
to  supporting  contributions.     The  schedule  is  on  page  56. 

The  symbols,  in  each  case  except  that  for  miscellaneous 
earnings,  are  merely  the  I  prefixed  to  the  symbol  for  the  ex- 
pense account  of  the  department.  This  suggests  that  the 
income  is  a  return  from  the  expenditure.  The  same  sort  of 
application  of  a  symbol  for  income  would  be  made  in  insti- 
tutions other  than  hospitals.  The  form  of  schedule  would 
be  similar. 

Detailed    Statement   of   Departmental   Earnings   and   Ex- 
penses 

For  any  institution  in  which  effort  is  made  to  charge 
fees  that  shall  make  any  departments  self-supporting,  and 


Schedule  VI 
Comparison  of  Departmental  Income  and  Expense 


Earnings 

Expenses 

Gain 

Loss 

Dispensary 
Ambulance 
X-Ray  service 
Other  departments* 

$2,715  35 
3,540.60 

1,285.75 
92,458.30 

$9,310.15 

5,275-10 

1,335-90 

234,078.85 

$6,594.80 

1,734  50 

50.15 

141,620.55 

$100,000.00 

$250,000.00 

$150,000.00 

•  In  order  to  make  this  incomplete  schedule  agree  with  the   deficit  shown   on 
form  B,  figures  for  the  departments  not  specified  in  this  schedule  VI   are  added. 


58 


COST  ACCOUNTING   FOR   INSTITUTIONS 


especially  for  those  attempting  to  derive  a  profit  from  par- 
ticular undertakings,  income  and  expense  should  be  brought 
together  in  a  single  statement,  somewhat  as  on  page  57, 

For  an  institution  like  a  school  this  schedule  would  as- 
sume a  somewhat  different  form,  because  of  the  overlap- 
ping of  income  groups  and  expense  groups.  The  following 
incomplete  schedule  will  suggest  the  principle. 

Schedule  VI 
Comparison  of  Divisional  Income  and  Expense 


Symbol 

Earn- 
ings 

Ex- 
penses 

Gain 

Loss 

Tuition  of  students 

ISG 

$140,000 

Instruction 

SG 

$170,000 

Libraries 

SB 

25,000 

Museums 

SM 

20,000 

$75,000 

Laboratories 

ISL  &  SL 

5,500 

5,000 

$500 

Correspondence  instruc- 

tion, etc. 

ISC  &  SC 

4,000 

4,200 

200 

Record  of  Departmental  Income  and  Expense 

Institutions  having  a  larger  number  of  departments 
which  are  primarily  intended  to  be  self-supporting  should 
adopt  a  system  by  which  the  comparison  of  income  and  ex- 
pense is  not  merely  reported  in  ephemeral  form,  but  is  re- 
corded on  the  principal  books.  It  is  desirable  also  to  relieve 
department  managers  of  immediate  responsibility  for  cer- 
tain charges  put  upon  them  by  superior  authority,  such  as 
rent,  interest,  insurance,  taxes,  depreciation,  and  repairs, 
and  to  have  each  month  a  figure  that  shows  the  actual 
direct  operating  expense  of  the  department.  It  is  also  im- 
portant to  see  that  debits  which  are  mere  offsets  to  credit 
items,  such  as  rebates,  remitted  charges,  and  corrections  of 


STATEMENT   OF   FINANCIAL   TRANSACTIONS        59 

errors,  are  not  confused  on  the  books  with  expenses,  and 
that  offsets  to  expense  items  are  not  confused  with  earn- 
ings. Care  should  be  taken,  finally,  to  enter  credits  to 
a  department,  except  for  closing  entries,  in  such  form  that 
they  shall  indicate  the  volume  of  business  done.  Those 
needs  suggest  the  convenience  of  three  general-ledger  ac- 
counts for  each  department,  as  follows:  Income,  Expense, 
General.  The  purpose  of  the  first  two  has  been  already 
indicated.  To  the  last  should  be  debited  all  charges  in- 
curred under  any  other  authority  than  that  of  the  depart- 
ment manager,  such  as  distribution  of  burden  charges,  in- 
terest, depreciation,  etc.,  and  to  it  should  be  credited  any 
income,  if  there  chances  to  be  any,  from  other  sources  than 
earnings.  Finally,  to  this  general  account  should  be  closed 
the  other  two  accounts — Income  and  Expense.  The  result 
is  the  ultimate  surplus  or  deficit  for  the  department.  The 
keeping  of  the  three  accounts  preserves  for  us  in  permanent 
form,  for  immediate  or  for  future  reference,  these  three 
important  annual  (or  monthly)  figures — direct  operating 
expense  (for  which  the  manager  is  responsible),  direct  oper- 
ating earnings,  final  surplus  or  deficit  after  all  allowances 
have  been  made.  The  figures  of  the  general  account  are 
available,  of  course,  for  the  report  comprehended  in  sched- 
ule VI. 

Other  Income  Accounts 

Separate  accounts  should  be  kept  for  the  various  sources 
of  income  for  the  corporation,  as  follows : 

Symbol 
Income  from  Stocks  ICD 

Income  from  Outside  Interest  (bonds,  mortgages,  etc.).     ICIO 
Income  from  Interest  on  Equipment,  Charged  to  De- 
partments ICIH 
Income  from  Real  Estate  ICR 


6o 


COST  ACCOUNTING  FOR  INSTITUTIONS 


Schedule  VII 
Subscriptions  from  Normal  Sources 


Group 

Totals 

From  individuals 

A.  Bee 

C.  Dee 

E.  Eff 

etc. 

etc. 

Total 

From  charitable  organizations 

Hospital  Aid  Association 

Morgan  Foundation 

etc. 

etc. 

Total 

From  governmental  sources 

Municipal  Treasury 

State  Treasury 

etc. 

Total 

From  churches 

First  Church 

Second  Church 

etc. 

etc. 

Total 
Grand  Total 

STATEMENT   OF   FINANCIAL   TRANSACTIONS         6l 

Symbol 
Income  from  Subscriptions,  Private  ICGP 

Income  from  Subscriptions,  Charitable  Organizations    ICGO 
Income  from  Subscriptions,  Governmental  ICGG 

Income  from  Churches  ICGC 

Income  from  Miscellaneous  Sources  ICZ 

(As  symbols,  C  =  corporation,  D  =  dividends,  I    [not  initial]  = 
interest,  H  =home,  G  =  gifts.) 

Legacy  Accounts 

Legacies  should  be  originally  credited  to  accounts  repre- 
senting the  particular  groups  under  which  they  chance  to 
fall.  Those  belonging  to  specific  funds  should  be  credited  to 
those  funds;  those  added  to  capital  should  be  credited  to 

Schedule  VIII 
Legacies  and  Other  Special  Contributions  Received 


Group 
Totals 


Restricted  and  capital  endowment 
Loring  bequest 
Bell  bequest 
etc. 

Total 

Available  for  purchase  of  property 
Spaulding  bequest 
etc. 

Total 

Available  for  current  expenses 
Suffield  bequest 
etc. 

Total 
Grand  Total 


62  COST  ACCOUNTING  FOR   INSTITUTIONS 

Capital  Legacies;  those  available  for  current  use  should 
be  credited  to  Current  Legacies.  At  the  end  of  the  year, 
Capital  Legacies  should  be  closed  into  Capital  Account.  If 
current  legacies  are  later  converted  to  capital  use,  Current 
Legacies  should  be  debited  and  Capital  Account  should  be 
credited;  but  if  used  for  current  purposes.  Current  Legacies 
should  be  closed  at  the  end  of  the  year  as  an  income  ac- 
count, and  the  balance  should  be  transferred  to  Normal  Cur- 
rent Income. 

Subsidiary  Ledger 

The  form  of  subordinate  ledger  recommended  later  for 
details  of  expense  is  likely  to  prove  serviceable  for  details  of 
income.  The  general  ledger  should  show  group  totals,  such 
as  Income  from  Subscriptions  (ICG),  but  it  need  not  show 
the  subdivisions.  These  may  be  recorded  in  the  subordinate 
ledger.  The  form  and  use  of  that  ledger  are  described  on 
page  1 08.  Of  course  the  form  would  be  adapted  to  this  use 
by  the  substitution  of  credit  columns  for  the  debit  columns 
shown  for  the  expense  ledger. 

This  form  of  subordinate  ledger  might  also  be  used  for 
interest  and  dividend  receipts  and  for  rentals  collected — if 
these  items  were  not  too  numerous  or  complicated  by  too 
many  offsetting  charges.  Whenever  these  items  are  numer- 
ous, they  should  be  recorded  in  a  subordinate  investment 
ledger  of  usual  form,  and  should  be  represented  in  the  gen- 
eral ledger  by  controlling  accounts  of  which  the  balance 
should  agree  with  the  sum  of  the  details  of  the  subordinate 
ledger  accounts. 


CHAPTER  IV 

THE   CLASSIFICATION    OF   EXPENSE    ACCOUNTS 

Many  details  of  information  can  be  preserved  without 
cumbering  the  general  ledger  or  making  much  labor  for  the 
bookkeepers.  Although  about  two  hundred  fifty  dif- 
ferent accounts  are  here  specified,  as  illustrations,  for  the 
running  expenses  of  a  hospital  (many  of  which,  however, 
are  not  required  in  small  hospitals  having  few  depart- 
ments), not  sixty  of  these  would  appear  under  this  plan  on 
the  general  ledger,  and  many  even  of  these  would  not  be 
needed  in  small  institutions. 

Subsidiary  Expense  Ledger 

Provision  for  this  large  number  of  detailed  accounts 
without  burdening  the  general  ledger  is  made  through  a 
subordinate  ledger  which  contains  numerous  details  for  each 
department,  and  is  the  medium  through  which  posting  may 
be  made,  for  a  group  of  such  details,  to  the  general 
ledger.  The  extreme  elaboration  of  the  plan  outlined  in  the 
following  pages  is  not  fatal  to  its  usefulness,  therefore,  for 
it  is  consistent  with  only  a  reasonable  amount  of  bookkeep- 
ing. It  must  be  judged  first  independently  of  the  book- 
keeping problems  raised — to  learn  whether  it  is  good  in 
itself.  If  it  is  found  good,  question  next  arises  as  to 
whether  it  is  worth  while. 

63 


64  COST  ACCOUNTING   FOR   INSTITUTIONS 

Classes  of  Expense  Accounts 

These  expense  accounts  are  of  three  fundamental  sorts: 
first,  the  primary  accounts,  by  which  expenditures  or  debts 
incurred  are  charged  to  the  accounts  with  which  they  are 
in  the  first  instance  directly  concerned — such  as  salaries  of 
nurses,  cost  of  food,  purchase  of  fuel ;  second,  secondary  ac- 
counts, to  which  items  originally  charged  to  primary  ac- 
counts are  later  transferred  in  order  that  they  may  be 
gathered  together  on  a  different  basis,  and  may  on  that  basis 
be  distributed  to  the  accounts  representing  the  ultimate  pur- 
pose of  the  expenditure;  third,  ultimate  accounts  showing 
the  summaries  of  results. 

The  purpose  of  these  three  classes  is  to  serve  three  sorts 
of  comparison ;  first,  detailed  comparisons  within  the  insti- 
tution, as  a  check  on  possible  wastefulness  or  as  a  gauge  of 
special  efficiency — for  example,  fuel  costs,  postage  expenses, 
laundry  wages;  second,  comparison  of  larger  groups  of 
costs  between  institutions  operating  under  different  condi- 
tions— for  example,  total  cost  of  nursing  where  there  is  a 
training  school  and  where  there  is  not,  and  the  cost  of 
cooking  where  employees  are  boarded  and  where  they  are 
not;  third,  final  comparisons  of  all  costs  per  principal-resi- 
dent day  for  separate  classes  of  principal  residents,  i.  e,,  pa- 
tients, students,  etc. 


Posting  to  Expense  Accounts 

In  the  following  description  of  the  expense  accounts  it 
should  be  noted  that  to  some  accounts,  the  secondary  and 
the  ultimate  accounts,  postings  will  ordinarily  be  made  only 
monthly  or  annually,  and  then  only  a  few  postings  will  need 
to  be  made.  In  practice,  therefore,  the  plan  does  not  in- 
volve so  much  labor  as  it  seems  to  do. 


CLASSIFICATION    OF   EXPENSE   ACCOUNTS  65 

Basis  of  Classification 

For  the  expense  accounts,  as  well  as  for  the  capital  ac- 
counts, a  hospital  will  serve  as  an  excellent  illustration. 
On  a  later  page  is  given  a  classified  list  of  the  accounts  rec- 
ommended, and  a  statement  of  the  uses  of  those  for  which 
the  use  is  not  obvious.*  The  principle  of  classification 
should  be  understood  before  this  list  is  examined,  how- 
ever, or  the  purport  of  it  will  probably  be  misunderstood. 
As  has  been  already  suggested,  one  classification  is  con- 
cerned with  the  character  of  the  accounts.  In  this  classifi- 
cation we  find :  primary  accounts,  which  are  chargeable  for 
expenses  incurred  for  one  sole  purpose — as  fuel  for  heating, 
postage  for  the  office,  and  wages  for  laundry  work;  sec- 
ondary accounts,  which  record  expenses  chargeable  as  a 
share  of  one  or  more  prime  costs — as  cost  of  board  for 
laundry  employees,  which  must  be  determined  as  a  pro- 
portion of  the  cost  of  food,  of  cooking,  and  of  serving  for 
the  institution  as  a  whole;  and  ultimate  accounts,  showing 
final  costs  for  the  ultimate  purposes  of  the  institution.  Two 
other  considerations,  virtually  making  new  classifications, 
are  noteworthy  in  connection  with  the  bookkeeping  entries 
which  get  the  figures  on  the  books;  primary  accounts  are 
usually  chargeable  at  the  time  an  expense  is  incurred,  but 
may  be  charged  in  either  the  special  expense  ledger  or  in 
the  general  ledger;  secondary  accounts  are  not  usually 
charged  when  expense  is  incurred,  but  by  monthly  or  an- 
nual distributions,  and  may  be  charged  in  either  the  special 
expense  ledger  or  the  general  ledger ;  and  ultimate  accounts 
are  chargeable  only  by  monthly  or  annual  transfers,  and 
only  on  the  general  ledger.     The  list  of  accounts  given  be- 


•  As  a  statement  of  the  uses  of  the  various  accounts  for  interest,  depreci- 
ation, and  repairs  is  necessarily  too  detailed  for  repetition,  in  connection  with 
•everal  departments,  in  a  comprehensive  list  of  this  sort,  usually  only  the  titles 
are   given   here;   the  detailed  discussion   will   be   found   on   pp.    103-105. 


66  COST  ACCOUNTING  FOR   INSTITUTIONS 

low  shows  all  three  classifications — the  nature  of  the  ac- 
count, the  method  of  entry,  and  the  ledger  in  which  it 
appears. 

Designation  of  Classes  to  Which  Accounts  Belong 

This  is  accomplished  by  means  of  symbols;  and  there- 
fore a  discussion  of  these  symbols  should  precede  the  list. 
Each  account,  moreover,  has  its  individual  symbol  (easy 
to  remember  because  of  its  mnemonic  form)  ;  and  this  sym- 
bol serves  the  double  purpose  of  classifying  the  account 
(showing  its  relation  to  the  property  accounts  and  to  other 
expense  accounts)  and  of  simplifying  all  records  in  which 
the  symbol  may  take  the  place  of  the  full  name  of  the 
account. 

Plan  of  Symbols 

The  general  plan  of  symbols  for  specific  accounts  may 
well  be  examined  first,  for  it  gives  a  brief  survey  of  the 
most  important  classification. 

Group  Symbols 

The  first  of  two  or  more  capital  letters  for  a  symbol 
(except  E  and  I — which  have  already  been  appropriated  for 
capital  accounts  and  income  accounts,  respectively)  indi- 
cates a  large  group  of  expense  accounts  as  follows: 

A    administration 

C    corporation 

D    department 

H    house  or  property 

P  professional  care  of  patients  (Here  P  has  a  larger  meaning 
than  in  capital  or  equipment  accounts.) 

R  a  summary  of  residents'  (not  employees',  but  patients', 
guests',  students',  etc.)  costs 

T  a  transfer  account  for  getting  detailed  accounts  into  sum- 
mary accoimts 


CLASSIFICATION    OF    EXPENSE    ACCOUNTS  67 

Symbols  Indicating  Divisions  of  Groups 

An  additional  capital  lettei  indicates  a  division  of  the 
group  letter,  and  suggests  its  meaning  either  by  its  initial 
or  by  a  relation  equally  obvious  when  once  noted.  Thus,  M 
suggests  ?7taterials,  and  is  used  for  supplies ;  N  is  for  insur- 
ance, because  I  is  already  in  use ;  O  suggests  zero,  or  low 
temperature,  and  hence  ice ;  O  suggests  equipment ;  X  sug- 
gests eA'haustion ;  and  Z  suggests  the  tag-end,  or  remainder. 
The  others,  as  shown  below,  are  sufficiently  obvious. 

A    annual  report 

B  buildings,  or  board,  as  HMB  (maintenance  of  household 
buildings),  RBW  (board  of  residents  in  wards) 

C    cubic  space 

D    dispensary 

E  electric  lighting,  or  emergency  ward,  as  HE  (house  electric 
lighting),  and  PE  (professional  care  of  emergency  cases) 

F    fuel 

G    gas 

H  housing,  or  housekeeping,  or  home  nursing,  as  CH  (corpora- 
tion rent),  DH  (housekeeping  department),  and  PH 
(professional  home  nursing) 

I     interest 

K    kitchen 

L  legal,  laundry,  or  lawn,  as  AL  (hospital  legal  expenses), 
DL  (department  of  laundry),  and  HL  (lawn) 

M  supplies,  or  ambulance,  or  maintenance,  as  PM  (professional 
supplies),  DM  (ambulance  department),  HMB  (mainte- 
nance of  household  buildings) 

N    insurance 

O  office,  or  ice,  as  AO  (administrative  office)  and  HO  (house- 
hold ice) 

P  postage,  or  pathological  laboratory,  or  power,  or  private 
rooms,  or  plumbing,  as  AP  (administrative  postage), 
DP  (department  of  pathological  laboratory),  HP  (house 
power),  RHP  (housing  of  residents  in  private  rooms),  and 
HMP  (maintenance  of  house  plumbing) 


68  COST  ACCOUNTING  FOR   INSTITUTIONS 

Q    equipment 

R    rent 

S  service,  or  steward,  or  surface,  as  AS  (administrative  ser- 
vice), DS  (department  of  steward),  and  THS  (transfer 
account  for  expense  distributed  on  the  basis  of  house 
floor  surface) 

T  telephone,  or  training  school,  or  taxes,  as  AT  (general  tele- 
phone), DT  (department  of  training  school),  and  HT 
(house  taxes) 

W  water,  or  wards,  as  HW  (household  water),  and  RLW  (laun- 
dry of  residents  in  wards) 

X  X-Ray,  or  depreciation,  as  PX  (professional  use  of  X-Ray), 
and  HXB  (depreciation  of  house  buildings) 

Z    miscellaneous 

Wherever  any  letter  has  more  than  one  designation,  as 
indicated  above,  the  meaning  in  the  particular  case  will  be 
sufficiently  suggested  by  the  other  letters  with  which  it  is 
associated :  for  instance,  DL  is  the  Department  of  Laundry, 
but  HL  is  the  Lawn  in  connection  with  the  Housing;  DM 
is  the  Ambulance  Department,  but  HMB  is  the  Mainte- 
nance of  Buildings  under  Housing  costs;  HW  is  Water  for 
the  Household,  but  RSW  is  Service  to  Residents  in  Wards. 

Symbols  Indicating  Subdivisions  of  Accounts 

The  lower-case  letters  indicate  subdivisions  of  the  cap- 
ital-letter divisions;  second  and  third  lower-case  letters 
(rare)  indicate  further  subdivisions.  As  far  as  possible 
lower-case  letters  have  the  same  meaning  as  capital  letters. 
Those  having  the  same  meaning  are  the  following : 

b  board  (also  books) 

f  fuel  (also  freight  or  express) 

h  housing 

i  interest 

1  laimdry 


CLASSIFICATION    OF   EXPENSE   ACCOUNTS  69 

m  supplies 

o  ice  (also  orderlies  and  outside) 

p  postage,  or  private  rooms,  or  power  (also  special — ^as  np,  for 

special  nurses) 

t  training  (also  table) 

w  wards  (also  stimulants) 

X  depreciation 

z  miscellaneous 

The  only  new  meanings  here  with  arbitrary  (not 
mnemonic)  symbols  are  p  and  w;  but  p  has  already  been 
used  for  private  room  (in  which  special  nurses  are  em- 
ployed), and  w  suggests  ivine  (stimulant). 

Lower-case  letters  with  no  corresponding  capital  sym- 
bols are  the  following:* 

a  apparatus 

d  dormitory,  or  physician  (</octor) 

g  graduate 

s  salaries  (allied  with  service) 

u  uniforms 

V  inventory 

If  for  any  reason  symbols  are  at  any  time  changed, 
great  care  must  be  taken  to  avoid  the  confusion  of  over- 
lapping old  with  new,  and  of  changing  in  some  places  but 
not  in  others. 

The  Use  of  Symbols  in  the  List  of  Accounts 

We  may  now  turn  to  the  full  table  of  expense  accounts. 

The  letters  in  the  first  column  indicate  the  method  of 
entry :  G  shows  that  the  account  is  a  group  account,  rep- 
resenting the  cost  of  a  group  of  items  of  which  the  details 
are  kej)!  in  the  subordinate  expense  ledger  and  the  totals  are 

•  Many  symbols  are  required  for  foods,  but  as  they  have  no  general  applica- 
tion elsewhere  they  are  separately  listed   where  they  occur — on  pages   77-79. 


yo  COST   ACCOUNTING  FOR   INSTITUTIONS 

transferred  to  the  general  ledger  only  monthly  or  annually. 
P  shows  that  the  account  is  a  primary  account  and  is 
charged  directly — usually  through  the  cash  book  or  the 
voucher  register.  S  shows  that  the  account  is  a  secondary 
account,  so  that  usually  charges  are  made  to  it  only  by 
monthly  or  annual  transfers,  or  that  it  is  an  allowance  ac- 
count for  the  monthly  or  annual  record  of  depreciation  or 
interest.  T  indicates  that  the  account  is  used  solely  for 
transfer  purposes — chiefly  for  gathering  prime  costs  to- 
gether and  distributing  them  to  the  secondary  accounts.  R 
indicates  an  ultimate  account. 

The  symbol  directly  associated  with  the  account  itself, 
as  shown  in  the  second  column,  indicates  not  only  its  gen- 
eral classification,  as  already  shown,  but  also  its  position 
— whether  it  is  to  be  kept  in  the  general  ledger  or  in  the 
subordinate  expense  ledger.  If  the  symbol  is  composed  ex- 
clusively of  capital  letters,  the  account  should  be  preferably 
in  the  general  ledger;  if  of  capital  and  lower-case  letters, 
it  should  be  preferably  in  the  subordinate  expense  ledger 
only. 

Classified  List  of  Expense  Accounts 

Administration 

G      AS         Administrative  Service 

This  group  covers  compensation  for  those  en- 
gaged in  general  administration,  and  in- 
cludes all  services  rendered  for  them  in  the 
way  of  compensation,  such  as  board,  rooms, 
and  laundry.  If  any  considerable  part  of 
the  time  of  these  persons  is  given  to  the  work 
of  any  special  department  named  below,  as, 
for  example,  instruction  in  the  training 
school,  the  compensation  should  be  appor- 
tioned. 


CLASSIFICATION    OF    EXPENSE    ACCOUNTS  71 

P  ASs       salaries 

S  ASb       board 

S  ASr       rooms  * 

S  ASl        laundr>' 

This  includes  not  only  personal  and  room 
laundry  of  office  employees  living  in  the 
house,  but  office  lavindry — towels,  for 
example. 

G     AO        Office  Expenses 

P  AOf       express 

This  includes  freight,  express,  and  cartage  on 
all  office  supplies  and  on  all  other  supplies 
not  having  special  accounts  designated 
later.  If  there  is  question  of  an  institu- 
tion's doing  its  own  carting,  it  is  likely  to  be 
worth  while  to  keep  a  special  account  for  all 
carting,  and  then  monthly  to  distribute  the 
total  charge  to  the  departments  concerned. 
Such  an  account  would  have  for  its  symbol 
AC. 

S  AOh      housing  * 

To  this  account  is  carried  at  monthly  intervals 
the  share  of  house  expenses,  such  as  fuel, 
lighting,  water,  care,  etc.,  which  is  charge- 
able to  this  department. 

P  AOm     stationery 

All  stationery  used  in  hospital  work,  including 
pens,  pencils,  mucilage,  blank  books,  etc., 
with  the  expense  of  printing — but  not  in- 
cluding stationery  and  printing  for  the 
treasurer's  office,  or  printing  annual  re- 
ports and  notices  of  meetings,  or  other 
corporation  printing. 

•  A  distinction  is  made  technically  in  these  accounts  between  rooms  and 
housing.  The  former  is  for  the  use  of  employees,  as  a  part  of  their  compensation, 
but  the  latter  is  distinctly   for   hospital   purposes. 


72  COST  ACCOUNTING  FOR  INSTITUTIONS 

P  AOp      postage 

Postage  for  office  use  only,  not  including  post- 
age on  annual  reports  or  on  notices  of  cor- 
poration meetings. 
S  AOi       interest 

Interest  on  equipment  of  office,  including  tele- 
phone equipment  if  not  extensive. 
S  AOx      depreciation 

Depreciation  on  equipment  of  office,  including 
telephone  equipment  if  not  extensive.    (See 
discussion  of  depreciation,  pp.  104-105.) 
P  AOz       miscellaneous 

This  may  include  repairs  and  replacements  of 
office  eqtiipment,  insurance  on  such  equip- 
ment, and  traveling  expenses.     (See  discus- 
sion of  repairs,  pp.  104-105.) 
G      AT        Telephone  and  Telegraph 
P  ATs       salaries 

If  the  telephone  is  served  by  an  employee  who 
does  other  work  also,  the  wages  should  be 
apportioned, 
board 
rooms 
laundry 
housing 

depreciation   (if  switchboards,  etc.,  are  exten- 
sive) 
P  ATz       miscellaneous 

This  should  include  any  messenger  service  for 
telephone  and  telegraph  purposes,  and  in- 
terest, insurance,  etc.,  on  equipment  if  ex- 
tensive. 
P      AL        Hospital  Legal  Expenses 

Legal  fees  in  connection  with  hospital  opera- 
tion and  hospital  bills,  but  not  legal  work  in 
connection  with  corporation  funds,  legacies, 
etc. 


s 

ATb 

s 

ATr 

s 

ATI 

s 

ATh 

s 

ATx 

CLASSIFICATION    OF    EXPENSE    ACCOUNTS 


73 


AZ         Miscellaneous  Administrative 

Miscellaneous  expenses  connected  with  run- 
ning the  hospital  as  a  whole  and  not  belong- 
ing to  any  department  or  any  accounts  pre- 
viously given  or  given  later.  These  should 
be  few. 


G     PS 


PSd 


p 

PSns 

p 

PSng 

p 

PSnt 

p 

PSnp 

p 

PSo 

p 

PSop 

p 

PSw 

s 

PSbp 

s 

PSbw 

s 

PSbz 

s 

PSrp 

s 

PSrw 

s 

PSrz 

s 

PSlp 

s 

PSlw 

s 

PSlz 

Professional  Care  of  Patients 

Professional  Services 

This  is  intended  to  cover  whatever  compensa- 
tion is  given,  salaries,  board,  rooms,  laun- 
dry, etc.  If  the  work  of  anyone  is  divided 
between  two  or  more  groups  of  service,  the 
compensation  should  be  divided, 
physicians 

Usually  physicians  receive  no  salary,  of  course, 
superintending  nurses 
graduate  resident  nurses 
nurses  in  training 
special  nurses 
orderlies 
special  orderlies 
ward  employees 
board  p 

Board  of  those  who  serve  private-room  pa- 
tients only, 
board  w 

Board  of  those  who  serve  ward  patients  only, 
board  z 

Board  of  those  who  serve  both  private-room 
and  ward  patients, 
rooms  p     (See  board  p.) 
rooms  w     (See  board  w.) 
rooms  z     (See  board  z.) 
laundry  p     (See  board  p.) 
laundry  w     (See  board  w.) 
laundry  z     (See  board  z.) 


74 


COST  ACCOUNTING   FOR   INSTITUTIONS 


p 

PQa 

G 

PM* 

P 

PMa 

G      PQ        Equipment  for  Nurses 
P  PQu      uniforms 

This  includes  the  cost  of  uniforms  for  nurses, 

less    any    payments    for    them    made    by 

nurses. 

-P  PQb       books 

Reference  books  and  periodicals  for  nurses — 
not  training-school  books  and  periodicals, 
apparatus  and  instruments  used  by  nurses  alone 
Medical  and  Surgical  Facilities  and  Supplies 
apparatus  and  instruments 

Cost  of  apparatus  and  instruments  to  replace 
old  ones  and  small  items  to  maintain  ef- 
ficiency at  a  constant  level,  including  in- 
siu"ance.  This  should  include  expendi- 
tures for  this  purpose  from  any  special 
funds.  Additions  should  be  charged  to  the 
capital  account  (I  or  EPM). 
PMm    medical  and  surgical  supplies 

This  should  include  all  supplies  for  this  gen- 
eral purpose,  such  as  medicines,  disinfect- 
ants, alcohol,  gauze,  bandages,  etc.,  but 
should  not  include  stimulants. 


PMw 


PMp 
PMo 


stimulants 

Wines,  liquors,  and  other  stimulants  used  for 
medical  purposes.     Flavoring  spirits,  car- 
bonated waters,  etc.,  should  be  charged  as 
food, 
power 

Cost  of  power  for  running  sterilizing  plant, 
ice 


Ice  for  medical   purposes,   transferred  from 
general  ice  account. 

•  If  a  pharmacist  is  employed,  or  any  one  has  special  care  of  mrd'cines,  ac- 
counts should  be  kept  for  wages,  etc.,  as  follows:  PMs,  PMb,  PMr,  and  bii 
laundry   should   be   cliarged   to    PMl. 


CLASSIFICATION    OF    EXPENSE    ACCOUNTS  75 


s 

PMl 

laundry 

For  operating  room  and  pharmacy. 

p 

PMf 

express 

s 

PMh 

housing 

This  is  for  space  expenses,  such  as  heating, 
lighting,  cleaning,  etc.,  for  the  space  occu- 
pied by  store-rooms,  pharmacy,  and  oper- 
ating  rooms    (including   sterilizing,    anaes- 
thetic and  recovery  rooms). 

s 

PMi 

interest 

s 

PMx 

depreciation 

G 

PD 

Dispensary 

P 

PDs 

salaries 

S 

PDb 

board 

S 

PDr 

rooms 

s 

PDl 

laundry 

p 

PDm 

supplies 

Any  medicines  and  supplies  not  purchased 
outside    but    received    from    the    hospital 
proper  should  be  debited  here  and  credited 
to  PMa,  PMm,  or  PMw. 

p 

PDf 

express 

s 

PDh 

housing 

s 

PDi 

interest 

s 

PDx 

depreciation 

p 

PDz 

miscellaneous 

This  would  include  repairs  and  replacement  of 
equipment,  and  insurance. 

G 

PE 

Emergency  Ward 

This  group  will  be  divided  similarly  to  that  for 
the  Dispensary. 

G 

PH 

Home  Nursing 

This  group  will  be  similarly  subdivided,  ex- 
cept that  its  equipment  is  normally  not 
kept  separate  and  therefore  no  account  will 
be  kept  for  interest  and  depreciation  (PHi 
and  PHx). 

76  COST  ACCOUNTING   FOR   INSTITUTIONS 

G      PX        X-Ray  Service 

This  group  will  be  divided  similarly  to  that  for 
the  Dispensary. 

Departments 

G      DM       Ambiilance  Service 

This  group  will  be  divided  like  that  for  the 
Dispensary.  Repairs  and  insurance  should 
be  charged  to  DMm,  however. 

G      DP        Pathological  Laboratory 

This  group  will  be  divided  similarly  to  that 
for  Home  Nursing,  for  as  its  equipment  is 
usually  wisely  consolidated  with  that  of  the 
Professional  Service  Group  (account  A  or 
EA,  or  PMa),  no  interest  and  depreciation 
need  be  entered  here  (DPi,  and  DPx) . 

G      DT        Training  School 

This  account  is  intended  to  cover  the  expenses 
that  pertain  directly  to  the  maintenance  of 
the  training  school  and  have  no  relation  to 
any  other  part  of  the  hospital.  These  ex- 
penses would  ordinarily  be  the  compensation 
of  teachers  and  the  cost  of  space  occupied 
by  the  class-rooms  and  the  cost  of  supplies. 
It  seems  inadvisable  to  charge  to  this  ac- 
count any  compensation  paid  to  nurses  in 
training,  for  that  is  usually  given  in  return 
for  services  rendered  in  the  general  hos- 
pital work.  Unless  these  direct  expenses  of 
the  training  school  are  kept  by  themselves 
and  are  not  confused  with  expenses  for  work 
that  serves  other  purposes,  it  is  difficult  to 
determine  the  comparative  cost  of  nursing 
in  hospitals  which  have  such  schools  and  in 
hospitals  which  have  not. 

P  DTs       salaries  of  teachers 

S  DTb      board  of  teachers 


CLASSIFICATION    OF   EXPENSE   ACCOUNTS  -jy 


s 

DTr 

rooms  of  teachers 

s 

DTI 

laundry  of  teachers 

p 

DTm 

supplies 

This  should  include  diplomas  and   cost  of 
graduating  exercises. 

p 

DTf 

express 

s 

DTh 

housing 

s 

DTi 

interest 

s 

DTx 

depreciation 

p 

DTz 

miscellaneous 

G 

DS        Steward's  Department 

P 

DSs 

salaries 

This  includes  wages  of  all  persons  engaged  in 
ordering,  receiving,  checking,  storing,  and 
issuing  food  as  purchased,  or  the  propor- 
tionate part  of  the  wages  of  any  persons 
engaged  partly  in  this  work. 

S         DSb        board 

S         DSr         rooms 

S         DSl         laundry 

P        DSmb*  bread  and  pastry 

Purchased  outside,  including  crackers  and 
other  bakers'  products. 

P        DSmcf    flour 

•  The  list  of  subdivisions  of  food  looks  unduly  long,  but  it  has  been  devised 
with  the  assistance  of  several  food  experts  and  institution  managers.  The  pur- 
pose of  the  subdivision  is  to  give  indication  of  the  kind  of  diet  furnished;  for 
without  that  a  judgment  of  food  costs  is  wholly  unwarranted.  Much  further  sub- 
division is  recommended,  and  that  suggested  here  is  the  minimum  deemed  service- 
able. Some  hospitals  keep  separate  costs  for  over  two  hundred  fifty  food 
staples,   and  believe  the  figures  worth  while. 

The   scheme   of  symbols   is  as    follows: 

The  symbol  for  all  food  supplies  begins  with  DSm — which  is  normal.  The 
next  letter  indicates  the  kind  of  food,  thus:  b,  bread;  c,  cereal;  d,  dairy  product; 
c,  eggs;  f,  fruit;  g,  groceries;  h,  (/loney)  sweets;  i,  ice  cream;  m,  meats;  n,  nuts; 
p,  poultry;  s,  (jea)  fish;  t,  tea  and  coffee;  v,  vegetables.  The  third  lower-case 
letter  (the  second  after  DSm)  indicates  the  form  of  the  food,  thus:  b,  breakfast 
preparations;  c,  canned,  or  cream;  d,  dried;  f,  fresh,  or  fat;  j,  juice;  m,  milk; 
p,  preserved;  s,  soured,  or  storage.  Obviously  in  making  notations  on  bills,  etc., 
for  bookkeeping  purposes,  it  would  be  absurd  to  use  the  full  symbol  for  each 
supply  purchased.  Only  the  letters  following  the  DSm  would  be  used,  thus:  b, 
bread;  dm,  milk;  sf,  fresh  fish.  On  memoranda  not  obviously  connected  with 
food  supplies,   however,   the   full  symbol  should  be  used. 


78 


COST  ACCOUNTING   FOR   INSTITUTIONS 


p 

DSmcb 

breakfast  foods  and  other  table  cereals 

p 

DSmdc 

cream 

p 

DSmdm  milk 

p 

DSmdp 

condensed  milk 

p 

DSmds 

cheese 

p 

DSmdf 

butter  and  other  table  and  culinary  fats 
This  should  include  table  and  culinary  oUs. 

p 

DSmi 

ice  cream 

Purchased  outside. 

p 

DSmef 

eggs,  fresh 

p 

DSmes 

eggs,  culinary 

Storage  eggs  not  deemed  suitable  for  table 
service  should  be  entered  here. 

p 

DSmep 

egg  preparations 

Desiccated   and   powdered   eggs   should    be 
entered  here. 

p 

DSmff 

fruits,  fresh 

p 

DSmfc 

fruits,  canned 

Fruits  preserved  by  sweetening  should  not  be 
entered  here. 

p 

DSmfd 

fruits,  dried 

p 

DSmfp 

fruits,  preserved 

Preserves,  jams,  jellies,  syrups,  and  crystal- 
lized fruits. 

p 

DSmfj 

fruit  juices 

p 

DSmvf 

vegetables,  fresh 

p 

DSmvc 

vegetables,  canned 

p 

DSmmf 

meats,  fresh 

p 

DSmmd  meats,  smoked,  cured,  and  dried 

p 

DSmmc  meats,  canned 

p 

DSmpf 

poultry,  fresh 

p 

DSmpc 

povdtry,  canned 

p 

DSmsf 

fish,  fresh 

p 

DSmsd 

fish,  smoked,  dried,  and  pickled 

p 

DSmsc 

fish,  canned 

p 

DSmn 

nuts  and  nut  products 

CLASSIFICATION    OF   EXPENSE    ACCOUNTS 


79 


p 

DSmh 

p 

DSmt 

p 

DSmg 

s 

DSo 

p 

DSf 

s 

DSh 

s 

DSi 

s 

DSx 

p 

DSz 

G 

DK 

P 

DKsb 

P 

DKsz 

S 

DKb 

S 

DKr 

s 

DKl 

p 

DKmf 

DKmz 


p 

DKf 

s 

DKh 

s 

DKi 

s 

DKx 

sugars,  syrups  (not  fruit),  molasses,  honey, 
confectionery 

tea  and  coffee 

This  should  not  include  coffee  substitutes, 
such  as  cereal  drinks,  cocoa,  etc, 

groceries  and  canned  goods  not  specified 

ice 

express 

housing 

interest 

depreciation 

miscellaneous 

Supplies  not  food,  and  repairs,  replace- 
ments, and  insurance  of  equipment. 
Kitchen  Department 

wages  of  bakers 

wages  of  other  kitchen  employees 

board 

rooms 

laimdry 

fuel 

To  this  account  should  be  debited  not 
only  coal,  gas,  wood,  etc.,  used  in  the 
kitchen,  but  also  at  convenient  inter- 
vals a  charge  for  power  for  steam  at 
steam  tables. 

supplies 
This  should  cover  not  only  soap  and 
other  supplies  consumed  in  the  kitch- 
en, but  replacements,  repairs,  and 
insurance  of  kitchen  utensils.  It 
does  not  include  an}-  food  or 
fuel. 

express 

housing 

interest 

depreciation 


8o 


COST   ACCOUNTING   FOR   INSTITUTIONS 


G  DH  Household  Department 

P  DHs  wages 

Wages  of  all  help  engaged  in  cleaning, 
sweeping,  dusting,  dining-room  work, 
etc.  If  any  are  engaged  only  partly 
in  this  work,  their  wages  should  be  ap- 
portioned. Under  some  conditions  it 
may  be  worth  while  to  maintain  a 
separate  account  for  dining-room  ser- 
vice, and  for  chamber  work;  for  the 
requirements  of  service  may  be  pecu- 
liar. The  new  accounts  would  be 
designated  DHst  and  DHsd,  and  the 
present  DHs  would  become  DHsz. 
DHbt,  DHbd,  DHrt,  DHrd,  DHlt, 
and  DHld  would  also  be  created. 
Then  DHb  would  become  DHbz,  DHr 
would  become  DHrz,  and  DHl  would 
become  DHlz.  (See  also  page  89). 
board 
rooms 
laundry 
supplies  d 

Replacements  and  repairs  of  furniture, 

linen,    bedding,   etc.,    for   dormitories 

and  patients'  sleeping  accommodations, 

including  insurance  on  such  equipment. 

DHmt  supplies  t 

Replacements    and    repairs    of    dining- 
room  equipment,  glassware,  crockery, 
trays,  etc.,  and  table  linen,  including 
insurance  on  such  equipment. 
DHmz  supplies  z 

Brooms,  brushes,  scrubbing  soap,  and 
all  other  supplies  used  in  general 
housekeeping  and  not  included  else- 
where here,  replacement  and  repairs  of 
general  furniture,  and  insurance  on  it. 


s 

DHb 

s 

DHr 

s 

DHl 

p 

DHmd 

CLASSIFICATION    OF    EXPENSE    ACCOUNTS 


8l 


p 

DHf 

express 

s 

DHid 

interest  on  dormitory  equipment 

s 

DHit 

interest  on  table  equipment 

s 

DHiz 

interest    on    general    housekeeping    equip- 
ment 

s 

DHxd 

depreciation    on    dormitory    equipment 

s 

DHxt 

depreciation  on  table  equipment 

s 

DHxz 

depreciation  on  general  housekeeping  equip- 
ment 

G 

DL 

Laimdry 

P 

DLs 

wages 

S 

DLb 

board 

S 

DLr 

rooms 

S 

DLl 

laimdry 

P 

DLmf 

fuel 

Not  only  coal,  gas,  etc.,  but  also  a  pro- 
portion of  power  when  steam  or  elec- 
tricity is  used. 

P 

DLmz 

supplies 

Not  only  starch,  wax,  bleaching  agents, 
soap,  etc.,  but  repairs,   replacements 
and    insurance     of     equipment — but 
not  fuel. 

P 

DLf 

express 

s 

DLh 

housing 

s 

DLi 

interest 

s 

DLx 

depreciation 

p 

DLo 

outside  laundry  work 

General  House  and  Property  Expenses 

HT  Taxes 

On  property  occupied  by  the  hospital. 
Taxes  on  other  projjerty  should  be 
charged  as  debits  to  the  income  ac- 
count of  that  property,  or,  if  the  prop- 
erty does  not  produce  income,  to 
corporation  income. 


82  COST  ACCOUNTING  FOR   INSTITUTIONS 

P      HE  Electric  Lighting 

P      HG  Gas 

Gas  used  for  other  than  lighting  pur- 
poses should  be  charged  to  DKmf  or 
DLmf. 
P      HF  Fuel,  Oil,  and  Waste 

P      HW  Water 

P      HO  Ice 

The  amount  is  later  distributed  in  part 
to  the  Steward's  Department  and  to 
Medical  and  Surgical  Supplies. 
S       HP  Power 

This  account  should  be  charged  for  any 
power  used  for  general  house  purposes, 
such  as  elevators  and  heating. 
P      HR  Rent 

To  this  account  should  be  charged  only 
rental  paid  for  buildings  not  owned. 
P      HMB  Maintenance  of  Buildings 

To  this  account  should  be  charged  the 
cost  of  repairs  only,  but  not  repairs  of 
plumbing  and  steam -fitting.  Addi- 
tions and  improvements  should  be 
charged  to  capital  account  (accotmt  B, 
or  EB). 
S       HXB  Depreciation  of  Buildings 

Depreciation  of  any  improvements  above 
the    land,    including    plumbing    and 
steam-fitting. 
P      HL  Care  of  Grounds 

This  includes  cost  of  snow  shovelling, 
lawn  mowing,  and  care  of  flower  beds. 
P      HMQ  Maintenance    of    Machinery    and    Tools 

Replacements  and  repairs  only.     Addi- 
tions should  be  charged  to  the  capital 
account  (account  Q,  or  EHQ). 
S      HXQ  Depreciation  of  Machinery  and  Tools 


CLASSIFICATION    OF    EXPENSE   ACCOUNTS  83 

P      HMP  Maintenance    of    Plumbing    and    Steam- 

fitting 

G      HS  Boiler-Room  Compensation 

This  account  covers  compensation  of  en- 
gineers and  firemen.  It  should  be 
credited  for  any  work  done  by  these 
men  in  care  of  grounds,  lepairs  of 
buildings,  etc.,  and  the  appropriate 
accotmts  should  be  debited. 

P  HSs  wages 

S  HSb  board 

S  HSr  rooms 

S  HSl  laundry 

P      HN  Insurance 

This  should  include  insurance  on  build- 
ings and  their  equipment  (not  depart- 
mental), and  only  that  portion  that 
falls  within  the  period.  When  insur- 
ance is  paid  for  longer  terms,  the 
excess  should  be  charged  to  Prepaid 
Insurance,  and  at  proper  intervals,  as 
the  insurance  accrues,  should  be  trans- 
ferred to  this  account.  To  this 
account  should  be  charged  only  insur- 
ance on  property  used  by  the  hospital. 
Insurance  on  property  held  as  invest- 
ment should  be  charged  to  the  income 
of  the  investment,  or  to  general  in- 
come if  the  property  bears  no  income. 
Insurance  on  property  used  by  de- 
partments should  be  charged  to  the 
departments — account  z  or  m*. 

•  When  account  m  is  primarily  for  supplies  to  be  consumed,  as  with  PMm 
and  DSm,  insurance  is  carried  to  z;  but  when  m  is  primarily  a  maintenance 
account,   insurance   is  carried   thither.     The   maintenance   account   of   PM    is   PMa. 


S4  COST  ACCOUNTING   FOR   INSTITUTIONS 

G      HZ  Miscellaneous 

P  HZf  express 

On    any    general    house    and    property 
eqmpment. 
P  HZz  miscellaneous 

Items  pertaining  to  house  and  property 
not  elsewhere  provided  for  and  not  ad- 
ministrative, professional,  or  depart- 
mental, should  be  charged  here.  If, 
for  example,  the  hospital  provides 
local  transportation  for  visitors  and 
employees  and  does  not  collect  enough 
from  passengers  to  meet  expenses,  the 
deficit  should  be  charged  to  this  ac- 
cotmt 
S       HIB  Interest  B 

On  improvements — buildings  and  grounds. 
S       HIQ  Interest  Q 

On  machinery  and  tools. 

Transfer  Accounts 

T      THS  Floor  Space  Cost 

To  this  account  are  transferred  all  pri- 
mary accounts  that  are  to  be  distrib- 
uted on  the  basis  of  floor-space  dimen- 
sion, such  as  housekeeping  wages,  care 
of  grounds,  etc. 

T      THC  Cubic  Space  Cost 

To  this  account  are  transferred  all  pri- 
mary accounts  that  are  to  be  distrib- 
uted on  the  basis  of  cubic  space,  such  as 
heating,  maintenance  of  buildings,  etc. 

T      TB  Transfer  Board 

To  this  account  are  transferred  all  pri- 
mary accounts  that  cover  board  items, 
such  as  food  supplies,  kitchen  wages, 
etc.;  and  these  are  hence  distributed 


CLASSIFICATION    OF    EXPENSE    ACCOUNTS 


85 


to  the  various  departments,  as  their 
employees  receive  board,  and  to  pa- 
tients. 
T      TP  Transfer  Power 

To  this  account  are  transferred  all  pri- 
mary accounts  that  cover  power  costs, 
of  whatever  type;  and  these  are  hence 
distributed  to  departments  on  the 
basis    of    the    use    made    of    power. 

Resident  Accounts 

R      RHP  Private-Room  Housing 

To  this  account  is  carried  the  portion  of 
total  space  cost  chargeable  to  private 
rooms. 
R      RHW  Ward  Housing 

To  this  account  is  carried  the  portion  of 
total  space  cost  chargeable  to  wards. 
R      RBP  Private-Room  Patient  Board 

To  this  account  are  carried  all   board 
costs  chargeable  to  private-room  pa- 
tients. 
R      RBW  Ward  Patient  Board 

To  this  accoimt  are  carried  all  board  costs 
chargeable  to  ward  patients. 
R      RLP  Private-Room  Laundry 

Proportion  of  laundry  costs  chargeable  to 
private-room  patients. 
R      RLW  Ward  Laundry 

Proportion  of  laundry  costs  chargeable  to 
ward  patients. 
R      RSP  Private-Room  Professional  Service 

Proportion  of  professional  care  of  patients 
chargeable  to  those  in  private  rooms, 
R      RSW  Ward  Professional  Service 

Proportion  of  professional  care  of  patients 
chargeable  to  those  in  wards. 


86  COST  ACCOUNTING   FOR   INSTITUTIONS 

R      RAP  Private-Room  Administrative  Costs 

Proportion      of      administrative      costs 
chargeable  to  those  in  private  rooms. 
R      RAW  Ward  Administrative  Costs 

Proportion      of      administrative      costs 
chargeable  to  those  in  wards. 

Corporation  Expenses 

P      CS  Corporation  Salaries 

P      CM  Corporation  Stationery 

Stationery  for  corporation  purposes,  such 
as  notices  of  meetings,  solicitation  of 
gifts,  including  printing  (but  not  an- 
nual report). 
P      CP  Corporation  Postage 

Postage  on  corporation  matters,  includ- 
ing notices  of  meetings,  but  not  postage 
on  annual  report. 
P      CA  Annual  Report 

Expense  of  printing  and  mailing  annual 
reports,  with  postage.     This  is  often 
heavy  and  should  be  shown  by  itself. 
P      CL  Corporation  Legal  Expenses 

Legal  expenses  in  connection  with  invest- 
ments, donations,  legacies,  and  other 
corporation    matters    not     connected 
with  the  operation  of  the  hospital  itself. 
P      CH  Corporation  Housing 

Housing   expenses   for   the    corporation 
offices,  or  rental  paid. 
P      CI  Corporation  Interest  Charges 

Interest  on  mortgages  and  loans  payable. 
Interest  earned  is  not  to  be  credited  to 
this  interest  account,  but  to  the  corre- 
sponding income  account. 
P      CZ  Corporation  Miscellaneous 

Corporation  expenses  not  otherwise  pro- 
vided for. 


CLASSIFICATION    OF    EXPENSE    ACCOUNTS  87 

Complete  Report  of  Expense  Accounts  Desirable 

It  is  desirable  that  institutions  using  this  plan  of  ac- 
counting shall  report  all  accounts  here  given,  in  order  that 
other  institutions  may  have  figures  for  comparison.  If  in 
any  institution  certain  accounts  have  no  figures,  because 
no  work  is  done  of  the  sort  intended  to  be  covered  by 
the  account,  the  account  should  preferably  appear  in 
the  report  with  no  figures  extended.  This  will  enable  one 
reading  the  report  to  see  conditions  at  a  glance.  If,  for 
instance,  DMr  is  blank,  it  should  be  true  that  the  driver 
of  the  ambulance  does  not  have  a  room  on  the  premises 
A  blank  after  PSd  shows  either  that  there  are  no 
resident  physicians  or  that  resident  physicians  receive  no 
pay.  If,  of  course,  a  whole  group  of  accounts  has  no 
figures,  as,  for  instance,  those  for  the  pathological  labo- 
ratory, it  is  unnecessary  to  report  the  subordinate  ac- 
counts in  detail  in  blank,  for  a  blank  for  DP  alone  will 
serve  the  purpose. 

It  is  desirable  that  the  total  of  the  debit  side  of  the  ac- 
counts named  above  shall  be  reported  (except  so  far  as  any 
items  have  been  entered  as  credits  merely  to  oflFset  erro- 
neous debits)  ;  for  since  many  transfers  are  made  in  the 
closing  processes,  as  described  in  Chapter  VII.  reporting 
only  net  debits  would  remove  many  accounts  entirely.  The 
total  of  the  debits,  then,  will  not  be  the  total  of  hospital  ex- 
penses, but  will  be  far  more  than  that,  for  many  transfers 
bring  some  items  into  several  places.  The  total  expenses 
are  shown  in  schedule  IV  (page  192).  The  expense  ac- 
counts named  above  are  intended  to  show  details,  and  when 
a  detail  forms  a  part  of  several  groups  it  should  be  re- 
ported in  all  of  them.  Food,  for  example,  is  charged  to  DS 
in  total;  the  part  consumed  by  nurses  is  charged  to  PSb; 
and  PSb  is  in  turn  charged  to  RSP  and  RSW.  So  certain 
food  is  charged  three  times.  It  ought  to  be  charged  three 
times,  however,  for  we  may  wish  to  study  it  in  all  three 


88  COST  ACCOUNTING  FOR   INSTITUTIONS 

connections.  The  total  of  all  accounts  in  this  list,  there- 
fore, is  meaningless.  In  order  to  check  the  correctness  of 
the  figures,  however,  from  the  total  of  all  such  debits  should 
be  subtracted  the  total  of  all  transfers ;  the  balance  should 
agree  with  the  expenses  shown  by  schedule  IV.  The 
amount  to  be  deducted  for  such  transfers  may  be  deter- 
mined easily  from  the  journal  on  which  such  transfers  are 
made,  or  from  the  general  ledger.  A  glance  at  the  skele- 
ton ledger  (page  226)  suggests  the  ease  with  which  it  may 
be  learned. 

If  it  is  objected  that  no  hospital  could  report  so  many 
details,  one  may  point  to  many  railroad  reports  that  give,  in 
small  compass,  quite  as  much  detail  of  operating  cost  as  that 
suggested  here.  Many  hospitals  report  much  more  detail 
in  matters  of  less  importance. 

Subdivision  and  Extension  of  Classification 

It  may  be  desirable  in  any  hospital  to  determine  costs 
for  certain  subdivisions  not  here  indicated — for  example,  in 
a  maternity  ward,  or  in  a  tuberculosis  ward,  as  subdivisions 
under  a  general  surgical  or  medical  ward.  Obviously  in 
such  a  case  the  only  alteration  required  in  the  plan  is  the 
creation  of  a  new  general-ledger  group  account,  with  its 
appropriate  subdivisions  in  the  expense  ledger  for  wages, 
board,  rooms,  housing,  etc.  In  no  case  is  any  complication 
created  except  that  of  increasing  the  number  of  accounts 
and  the  number  of  distributions  of  the  joint  or  burden 
costs. 

It  may  be  desirable  also  to  keep  accounts  for  some  de- 
partments not  here  indicated,  but  considered  in  this  book 
in  connection  with  the  work  of  other  institutions.  Espe- 
cially is  this  likely  to  be  true  of  sanitaria.  Such  departments 
are  those  having  charge  of  baths,  tennis  courts,  golf  courses, 
gymnasia,  etc. 


CLASSIFICATION    OF    EXPENSE    ACCOUNTS  89 

New  York  Hospital  Plan  of  Accounting 

A  plan  of  hospital  accounting  that  is  excellent  for  the 
care  of  prime  costs — but  does  not  attempt  to  provide  ac- 
curately for  the  distribution  of  items  common  to  various 
departments,  such  as  board  of  employees — is  in  use  in  many 
hospitals.  It  is  commonly  called  the  New  York  Hospital 
Plan.  The  basis  of  the  classification  of  accounts  used  in 
this  book  is  intentionally  such  that  hospitals  using  this  clas- 
sification may  make  comparisons  with  hospitals  using  the 
New  York  Plan,  for  the  main  divisions  are  the  same.  Cer- 
tain combinations  of  accounts  shown  here  have  the  same 
content  as  individual  accounts  or  obvious  combinations  of 
accounts  shown  under  that  plan.  Appendix  C  names  (by 
symbol)  the  accounts  shown  in  this  book  which  agree  in 
content  with  the  main  accounts  (indicated  by  number)  of 
the  other  plan. 

Dining-Room  Service 

One  peculiarity  of  a  hospital  is  that  the  meals  of  patients 
are  usually  served  in  their  rooms  or  at  their  bedsides.  The 
dining-room  service  is  for  employees.  Consequently  in  the 
plan  outlined  for  hospitals  the  cost  of  dining-room  service 
is  a  mere  incidental  of  housekeeping,  and  is  distributed  in 
common  wth  other  housekeeping  costs.  The  amount  is  so 
small  that  further  refinement  of  distribution  is  deemed  un- 
necessary. For  many  institutions,  on  the  other  hand,  and 
sometimes  even  for  hospitals,  dining-room  service  is  an 
important  element  of  cost.  Such  are  colleges,  clubs,  and 
hotels.  For  these  either  a  separate  account  should  be  pro- 
vided (DD),  or  subdivision  should  be  made  of  the  house- 
keeping department  (DH).  If  a  new  department  is  created 
it  would  have  its  place  in  the  general  ledger,  and  its  sub- 
divisions (DDs,  DDb,  DDr,  DDh,  DDl,  DDm,  DDf,  DDi. 
DDx)  would  have  their  places  in  the  subordinate  ledger. 


90  COST  ACCOUNTING  FOR   INSTITUTIONS 

Expense  Accounts  for  Educational  Institutions 

For  convenience  of  discussion,  institutions  other  than 
hospitals  may  be  divided  into  two  classes :  colleges,  schools, 
and  other  educational  institutions,  on  one  hand,  and  hos- 
telries,  clubs,  etc.,  on  the  other. 

For  educational  institutions  the  important  peculiar  ex- 
pense accounts,  classified  by  departments  already  indicated 
for  the  capital  accounts  of  such  institutions,  are  Hkely  to 
fall  in  the  following  groups  : 

G      SG  Instruction  orally  for  students  in  residence 

(Below  are  indicated  subdivisions  on  the 
basis  of  the  rank  of  teachers.    In  many 
institutions  one  account  for  salaries — 
SGs — would  suffice.     In  many,  on  the 
other  hand,  subdivision  is  on  the  basis 
of  subjects  taught  (or  teaching  depart- 
ments).    Such  details  are  usually  not 
worth  maintaining  on  principal  books 
of  accoimt,  however,  for  since  salaries 
are  continuous  they  may  be  learned 
statistically  at  any  time.    A  division  of 
cost  of  supplies,  secretarial  assistance, 
etc.,  between  departments  is  likely  to 
be  worth  while.     Provision  is  easily 
made  for  such  subdivision.) 
salaries  of  masters  and  professors 
salaries  of  assistant  masters  or  assistant  pro- 
fessors 
salaries  of  teachers  or  instructors 
salaries   of   special    teachers    or   lecturers 
salaries  of  assistants,   demonstrators,  etc. 
secretarial  service  for  teachers 
rooms  for  teachers 
board  of  teachers 
laundry  of  teachers 


p 

SGsm 

p 

SGsa 

p 

SGsi 

p 

SGsp 

p 

SGsd 

p 

SGss 

s 

SGr 

s 

SGb 

s 

SGI 

p 

SGf 

s 

SGh 

s 

SGi 

s 

SGx 

G 

SE 

CLASSIFICATION    OF    EXPENSE    ACCOUNTS  91 

SGm  supplies  (chalk,  stationery,  etc.,  for  classes) 

and  maintenance  of  equipment 
express 
housing 

interest  on  equipment 
depreciation  of  equipment 
Instruction  for  extension  students 

(This  will  have  practically  the  same  sub- 
divisions as  the  account  for  instruction 
of  students  in  residence.) 
G      SO  Instruction  by  correspondence 

(This  will  have  practically  the  same  sub- 
divisions as  the  account  for  instruction 
of  students  in  residence;  but,  of  course, 
SCss  will  have  very  much  more  impor- 
tance, and  it  would  be  worth  while  to 
maintain  an  account  for  postage — SCp.) 
G      SL  Laboratories  for  students'  use 

(The  subdivisions  of  this  account  will  be 
very  much  the  same  as  for  SG,  except 
that  the  salaries  hardly  need  subdi- 
vision.) 
G      PL  Laboratories  for  research 

(This  will  have  virtually  the  same  subdi- 
visions as  those  above;  but  the  only 
salaries  may  happen  to  be  for  assistants 
not  engaged  in  teaching.  The  symbol 
would  naturally  be  PLs.) 
G      SB  Libraries  for  students'  use 

(The  subdivisions  will  be  similar  to  those 
above,  except  that  other  classes  of  sal- 
aries will  be  substituted  for  those  given 
in  the  group  of  instruction — for  in- 
stance: SBsa,  administrative  officers; 
SBso,  accession  department  clerks; 
SBsc,  cataloguers  and  classifiers;  SBss, 
secretarial   service  for  officers;  SBsp, 


92  COST  ACCOUNTING  FOR   INSTITUTIONS 

shelf -department  clerks;  SBsl,  loan 
clerks  engaged  in  the  receipt  and  de- 
livery of  books;  SBse,  runners  and 
errand  boys;  SBsr,  reference  depart- 
ment clerks;  SBsb,  bindery  employees; 
SBsz,  miscellaneous  employees  engaged 
in  general  service.  Binding  materials 
should  be  charged  to  SBmb.  If,  how- 
ever, much  binding  is  done  in  the 
library,  a  separate  department  shoiild 
be  created  and  all  costs  (interest,  de- 
preciation, etc.)  should  be  charged  to  it. 
In  any  case,  records  should  distinguish 
the  costs  of  rebinding  old  bound  books 
from  those  of  binding  pamphlets,  mag- 
azines, and  newspapers.  The  cost  of 
rebinding  should  be  carried  as  one  of 
the  regular  expenses;  but  the  costs  of 
binding  separate  parts  into  a  volume 
should  be  annually  credited  to  the  ex- 
pense accoimts — for  they  add  to  the 
capital  value — and  debited  to  the  cor- 
responding capital  accounts.  If  de- 
sired, all  binding  costs  may  be  com- 
bined into  one  account,  SBg,  (glue) 
whether  the  work  is  done  inside  or  out- 
side.) 
G      PB         Libraries  for  research 

(This  account  should  be  treated  similarly  to 
the  general  library  account.) 
G      SM        Museums    and    other    permanent    exhibitions 

(This  should  be  treated  similarly  to  SB,  ex- 
cept that  the  exact  titles  will  differ  some- 
what. The  principal  wages  acco\mt,  SMs, 
should  include  only  the  cost  of  service  for 
exhibition  purposes.  The  cost  of  service 
for  mounting,  collecting,  classifying,  etc., 


CLASSIFICATION    OF    EXPENSE    ACCOUNTS  93 

should  be  charged  to  capital  accounts — pos- 
sibly with  such  subdivisions  as  ESMs  for 
service  and  ESMm  for  supplies  used.  This 
would  distinguish  such  costs  throughout 
the  year;  but  they  should  be  ultimately 
closed  out  to  the  general  account  for 
museum  equipment — ESM.) 

G      SO         Observatories  for  students 

(The  subdivisions  here  would  be  similar  to 
those  above.) 

G      PO        Observatories  for  research 

(This  wovild  probably  require  considerable 
subdivision,  such  as  the  following:  POso, 
salaries  of  observers;  POsc,  salaries  of  com- 
puters; POsp,  salaries  of  photographers; 
POss,  salaries  of  recording  clerks;  POsz, 
salaries  of  general  employees;  POb,  books; 
POp,  postage;  POf,  freight;  POmp,  photo- 
graphic supplies;  POmz,  general  supplies.) 

G      HH       Public  halls 

(It  is  hardly  probable  that  any  expense  ac- 
counts will  be  required  for  these  except  for 
interest,  depreciation,  repairs,  insurance, 
taxes,  light,  and  heat — all  of  which  would  be 
charged  as  space-cost  distribution,  HHh — 
with  wages  of  care,  HHs,  and  such  supplies 
as  chanced  to  be  consumed,  either  directly 
or  in  maintenance  of  facilities.  Main- 
tenance of  facilities  should  be  charged  to 
HHm,  but  maintenance  of  the  building 
proper  should  be  charged  to  HMB.) 

G      DI         Gymnasium 

(Salaries  might  well  be  divided,  e.g. — DIsi, 
salaries  of  instructors;  DIsa,  salaries  of 
attendants  and  rubbers;  DIsz,  salaries  of 
general  employees;  but  the  time  of  persons 
employed  in  repairing  apparatus  should  be 
charged  to  Dim,  with  other  maintenance.) 


94  COST  ACCOUNTING  FOR   INSTITUTIONS 

Expense  Accounts  for  Hotels,  Clubs,  Etc. 

The  accounts  for  institutions  not  engaged  in  either  in- 
struction or  the  care  of  inmates — such  as  hotels,  clubs,  etc. 
— need  not  usually  be  complicated  by  great  detail  except  in 
those  departments  already  worked  out  for  hospitals  or  col- 
leges, as  indicated  above.  The  special  accounts  would  be, 
as  suggested  by  the  discussion  of  capital  accounts,  as  fol- 
lows: 

G      DE        Entertainments 

(This  account  would  usually  contain  only  the 
sums  paid  to  entertainers,  or  for  the  pur- 
chase of  theatrical  properties,  etc.  If  the 
properties  are  of  permanent  value  they 
should  be  charged  to  the  capital  or  equip- 
ment accoimt.) 

G      DV       Golf  Links 

(The  only  subdivision  of  labor  probably  neces- 
sary here  is  between  the  administrative  and 
the  ground  men;  but  except  in  large  estab- 
lishments this  wotild  not  be  worth  while.  If, 
however,  caddies  are  paid  by  the  institution, 
their  wages  should  be  kept  separate.) 

G      DT        Tennis  Courts 

(The  subdivision  would  be  the  same  as  for 
golf  links.  The  symbol  used  here  is  the  same 
as  that  for  the  department  of  training  school 
in  a  hospital,  but  it  is  improbable  that  any 
institution  will  require  both  accotmts.  If  so, 
DX  is  available  for  tennis.) 

G      DW       Baths 

(It  is  probably  worth  while  to  distinguish  be- 
tween the  salaries  of  swimming  instructors, 
DWsi,  attendants  in  bathrooms,  DWsa,  and 
general  employees,  DWsz.) 


CLASSIFICATION    OF    EXPENSE    ACCOUNTS  95 

G      DA        Boats 

(li  any  persons  are  employed  to  give  instruc- 
tion in  rowing  and  paddling,  their  salaries 
should  be  distinguished,  DAsi,  from  those  of 
attendants  and  workmen  engaged  in  keep- 
ing the  equipment  in  use  and  in  repair, 
DAsz.) 

G      DO        Bowling  Alley 

(The  same  principles  apply  here,  and  below.) 

G      DR        Billiard  Rooms 

G      DQ        Card  Rooms 

G      DJ         Stable 

(This  account  should  be  carefully  subdivided 
so  as  to  show  the  various  costs  for  salaries  of 
drivers,  of  hostlers,  and  of  messengers;  for 
feed;  for  repairs  and  maintenance  of  har- 
nesses; for  repairs  and  maintenance  of  ve- 
hicles; for  replacement  of  robes;  for  care  of 
horses.  Conditions  are  likely  to  vary  so 
much  that  it  is  hardly  worth  while  to  desig- 
nate the  accounts  by  name.  Each  subdivi- 
sion of  service  should  be  given  a  symbol  with 
a  lower-case  letter  following  the  depart- 
mental symbol.  See  alphabetical  list  of 
symbols,    page    208,    for    suggestions.) 

G      DG       Garage 

(The  same  principles  would  apply  for  this  as 
for  the  stable — distinguishing  drivers  from 
mechanicians  when  the  functions  are  kept 
apart,  and  keeping  separate  oil,  gasoline,  re- 
pairs, etc.  See  alphabetical  list  of  symbols, 
page  207,  for  suggestions.) 

G      DF        Cartage 

(This  would  be  subdivided  similarly  to  the 
account  for  the  stable.) 


96  COST  ACCOUNTING  FOR   INSTITUTIONS 


G 

DY 

Bar 

(Care  shotdd  be  taken  that  adequate  provision 
is  made  for  maintenance  or  depreciation  of 
glassware,  etc.) 

G 

DN 

News  Stand 

G 

DC 

Cigar  Stand 

If  a  club  maintains  a  library  or  an  exhibition,  the  ex- 
pense accounts  would  be  similar  to  those  for  the  correspond- 
ing departments  of  a  college.  The  symbols,  however,  would 
naturally  be,  for  the  library,  DB  rather  than  SB  or  PB, 
and,  for  the  exhibition,  DM  rather  than  SM. 

Publicity  Expense  Accounts 

Both  educational  and  entertaining  institutions  are  likely 
to  need  one  set  of  accounts  not  required  by  hospitals — those 
connected  more  or  less  directly  with  publicity  or  the  culti- 
vation of  cordial  relations  with  remote  communities.  This 
gives  rise  to  three  new  accounts — Advertising,  Hospitality, 
Publications  (not  advertising).  These  might  well  be  car- 
ried each  in  a  general  ledger  account,  designated  as  OA, 
OH,  OP,  respectively  (O  suggesting  relations  with  the 
outside  public).  Hospitals  issuing  medical  monographs  or 
journals  should  maintain  account  OP. 

Interest,  Insurance,  Taxes,  Etc. 

Institutions  other  than  hospitals  should  also  count  as  a 
cost  interest  on  the  value  of  their  land  as  well  as  insurance, 
taxes,  etc.,  already  indicated;  for  with  them  a  wide  variety 
of  choice  of  sites  is  usually  open,  and  the  choice  affects 
cost  directly;  but  most  hospitals  have  their  sites  prescribed 
largely  by  their  field  of  work.  A  separate  account  should 
be  maintained  for  such  interest,  however,  so  that  compari- 
sons with  institutions  under  other  conditions  can  be  made 
without  confusion.  A  natural  symbol  would  be  HIO  (con- 
trasted with  HIB  for  buildings). 


CHAPTER  V 
THE   METHOD    OF   DETERMINING    COSTS    IN    DETAIL 

We  may  now  turn  to  the  methods  by  which  we  hope 
to  produce  ultimate  figures  of  cost.  It  may  be  well  to  begin 
at  what  is  chronologically  the  wrong  end,  and  see  what 
figures  we  are  aiming  at,  and  then  look  back  and  see  how 
they  may  be  attained.  Our  ultimate  aim  is  a  statement 
that  may  be  called  the  "final  summary  of  institution  ex- 
penses." This  shows  not  only  the  totals  for  various  groups 
of  expense,  but  the  conversion  of  all  those  expenses  into 
a  cost  per  unit. 

The  Cost  Unit 

Since  one  of  the  best  types  of  institution  that  we  can 
use  for  purpose  of  illustration  is — here,  as  before — a  hos- 
pital, let  us  see  some  imaginary  figures  for  the  types  of 
expenditure  to  be  met. 

Most  expenses  should  be  shown  for  the  unit  of  the 
patient-day ;  but  a  distinction  should  be  made  between  ward 
patients  and  private-room  patients,  because  the  conditions 
of  service  are  widely  different  and  the  expenses  are  much 
higher  in  one  than  in  the  other.  Many  items,  however, 
are  not  useful  statistically  on  the  basis  of  the  patient-day. 
Ambulance  service,  for  example,  is  the  same  for  a  person 
brought  to  the  hospital  for  a  two-days'  stay  as  for  one 
brought  for  a  three-months'  stay.  Not  usually  are  twice 
as  many  laboratory  tests  or  examinations  made  for  a  patient 
who  stays  a  month  as  for  one  who  stays  a  fortnight.     For 

97 


98  COST  ACCOUNTING  FOR   INSTITUTIONS 

these  various  special  items  of  expense,  therefore,  the  unit 
for  which  costs  are  to  be  figured  should  be  determined 
solely  by  the  nature  of  the  service  rendered.  The  unit 
for  ambulance  service,  for  example,  is  a  trip;  for  the  dis- 
pensary it  is  a  treatment ;  for  the  home  nursing  department 
it  is  a  visit. 

Our  final  statement,  therefore,  should  give  us  a  unit  cost 
for  all  types  of  service  rendered,  divided,  however,  not 
only  on  the  basis  of  the  kind  of  service  rendered,  but  also 
on  the  type  of  patient  for  whom  it  is  rendered.  Any  figures 
less  distinct,  less  specialized  than  these,  fail  to  serve  the 
purposes  which  animate  us  in  a  plan  of  uniform  accounts; 
for,  unless  we  have  final  unit  costs,  it  is  impossible  to  make 
comparisons  between  institutions  working  under  varying 
conditions — as  between  a  hospital  where  the  nursing  is 
done  mostly  by  nurses  in  training  without  wages  and 
hospitals  employing  only  graduate  nurses,  or  between 
schools  utilizing  the  services  of  scholars  for  household 
labor,  schools  employing  only  paid  laborers  who  board 
outside,  and  schools  using  only  employees  boarding  on  the 
premises. 

Expenditures  on  Account  of  Employees 

The  obvious  difficulty  in  the  way  of  getting  these  final 
figures  is  to  make  distinctions,  as  we  go  along,  between 
expenditure  on  account  of  employees  and  expenditure  on 
account  of  the  persons  for  whom  the  institution  is  primarily 
maintained — as  patients  in  a  hospital,  pupils  in  a  school, 
guests  in  a  hotel  or  club.  In  the  first  place,  no  supplies 
should  be  issued  without  a  requisition  upon  the  stores  de- 
partment, for  otherwise  there  is  no  knowing  what  is  their 
destination.  These  requisitions  accomplish  the  purpose, 
without  much  labor,  for  everything  except  foods;  but  in 
this  respect,  since  in  any  large  establishment  several  tables 


METHOD   OF   DETERMINING   COSTS    IN    DETAIL     99 

are  likely  to  be  maintained  and  many  foods  are  common 
to  them  all,  care  is  necessary  to  see  that  each  table  is  charged 
for  its  actual  consumption. 

Distribution  of  Food  Costs 

If  proper  account  is  taken  of  the  number  of  persons 
sharing  in  each  kind  of  dietary,  so  that  the  figures  may 
show  for  what  the  various  departments  are  chargeable  on 
account  of  board,  the  accounting  may  be  simple,  with  a 
unit  cost  for  each  type  of  table.  The  actual  consumption 
of  food  for  each  type  of  dietary  is  determined  by  a  division 
of  all  foods  consumed  into  three  sorts — those  peculiar  to 
each  type  of  dietary  (called  "special  food"),  those  common 
to  several  types  of  dietary  but  consumed  only  occasionally 
(called  "common  occasional  foods"),  and  those  of  prac- 
tically continuous  consumption,  such  as  flour,  butter,  eggs, 
sugar,  etc.  (called  "common  regular  foods").  For  all  spe- 
cial and  occasional  foods  the  mere  preparation  demands 
that  someone  shall  note  for  each  meal  what  is  required. 
For  all  common  regular  foods  the  consumption  may  be 
learned  from  stores  records.  So  full  information  is  at 
hand.  The  transfer  of  these  figures  of  requirement  and  of 
stores  to  sheets  recording  the  consumption  of  all  foods  fur- 
nishes all  necessary  material  for  the  determination  of  the 
cost  of  food  for  each  type  of  dietary.  In  the  following 
chapter  will  be  found  forms  which  simplify  the  process  of 
recording  and  calculating  these  costs.  Since  the  time  books 
will  show  the  number  of  employees  in  each  department  on 
each  dietary,  it  is  a  simple  matter  to  determine  for  each 
class  of  table  the  amount  which  should  be  charged  to  that 
department  for  the  board  of  those  employees. 

Distribution  of  Housing  Costs 

Similarly,  the  cost  of  lodging  for  the  various  employees 
should  be  distributed  to  the  departments  responsible   for 


TOO  COST  ACCOUNTING  FOR   INSTITUTIONS 

them.  Indeed,  a  general  distribution  of  all  housing  costs 
throughout  the  institution  should  be  made  at  least  annually. 
To  do  this  does  not  require  inordinate  labor.  When  once 
the  floor  space  and  cubic  space  of  the  rooms  occupied  by 
the  various  departments,  and  of  the  quarters  used  as  lodg- 
ings by  employees  of  the  departments,  have  been  calculated, 
it  is  easy  to  determine  what  proportion  of  all  the  costs  re- 
lating to  housing  should  be  charged  to  each  department. 
If  the  dining-room,  for  instance,  occupies  one  thousand 
square  feet  and  the  whole  establishment  occupies  fifty 
thousand  square  feet,  the  serving  department  should  bear 
one-fiftieth  of  this  group  of  expenses — as  well,  of  course, 
as  an  additional  share  determined  by  the  floor  space  of 
waitresses'  sleeping  rooms.  Certain  items,  like  cleaning, 
should  usually  be  distributed  on  the  basis  of  floor  space; 
heating,  lighting,  and  building  repairs  should  usually  be 
distributed  on  the  basis  of  cubic  space;  but  in  any  par- 
ticular case  it  is  necessary  to  consider  the  circumstances  of 
the  institution  before  the  space-cost  distribution  can  be 
made  satisfactorily.  It  would  be  unfair,  for  instance,  to 
charge  a  department  for  light  on  the  basis  of  cubic  capacity 
if  in  that  department  light  is  used  only  at  rare  intervals, 
or  only  for  a  desk  situated  in  a  corner.  Practically  all  the 
house  and  property  charges,  including  heating  and  lighting, 
insurance,  taxes,  rentals,  care  of  grounds,  etc.,  may  be  dis- 
tributed on  this  space-cost  plan ;  and  when  once  the  calcula- 
tions have  been  made  determining  the  percentage  for  each 
department,  no  further  calculations  need  be  made,  except 
to  apply  the  fixed  percentage  to  the  total  cost,  until  some 
rearrangement  of  housing  has  been  made.  The  calculation 
of  these  figures,  moreover,  is  not  laborious  if  only  one  takes 
advantage  of  such  mechanical  devices  as  the  slide  rule  and 
computing  machines. 


METHOD    OF    DETERMINING    COSTS    IN    DETAIL   loi 

Expenditures  for  Those  Not  Employees 

It  is  obvious  that  if  we  charge  to  each  department  the 
board,  lodging,  and  laundry  of  its  employees — and  credit 
the  board  account,  the  housing  accounts,  and  the  laundry 
account  for  those  sums — the  amount  remaining  as  a  charge 
to  the  board  account,  the  housing  accounts,  and  the 
laundry  account,  is  the  amount  directly  chargeable  to  the 
service  of  those  for  whom  the  institution  is  primarily  main- 
tained— whether  patients,  guests,  students,  or  what  not. 
This,  of  course,  is  the  ultimate  figure  which  every  one  is 
seeking,  in  order  that  comparison  may  be  possible  between 
different  institutions;  and  the  method  outlined  allows  for 
all  difference^  of  condition  not  inherent  in  the  situation 
itself,  such  as  boarding  employees  in  or  out,  owning  or 
hiring  quarters,  buying  or  making  electricity,  etc. 

Cost  Accounting  Methods 

The  bookkeeping  methods  by  which  all  this  can  be 
brought  about  may  be  worth  summarizing.  The  various 
departments  of  an  institution  should  be  given  general  ac- 
counts in  the  general  ledger,  and  for  convenience  in  mak- 
ing memoranda,  etc.,  each  should  have  its  symbol,  as  al- 
ready indicated.  These  departmental  accounts  may  be  rep- 
resented in  a  subordinate  expense  ledger  containing  an  ac- 
count for  each  type  of  direct  expense  pertaining  to  them — 
such,  for  example,  as  express,  stationery,  and  postage,  under 
office  expense.  Each  of  these  departmental,  or  general, 
accounts  would  preferably  have  in  this  subordinate  ledger 
certain  other  subdivisions,  or  secondary  accounts,  to  be 
used  ordinarily  only  for  transfer  or  closing  entries  at  the 
end  of  each  month,  quarter,  or  year.  As  in  the  ordinary 
course  of  bookkeeping,  the  direct  expense  accounts,  such 
as  have  been  just  enumerated  for  office  expense,  are  deb- 
ited from  the  cash  book  or  the  voucher  register;  and  this 


102  COST  ACCOUNTING  FOR   INSTITUTIONS 

plan  would  require  no  change  in  the  method  except  the  pro- 
vision of  this  special  expense  ledger  to  show  in  detail  the 
items  shown  in  lump  sum  on  the  general-ledger  account. 
The  various  items  which  cannot  be  easily  charged  directly 
to  departments  as  payment  is  made,  such  as  board,  lodging, 
interest,  depreciation,  etc.,  would  be  charged  first  to  general 
accounts,  or  certain  subdivisions  of  those  accounts,  and 
would  be  distributed  at  the  end  of  any  convenient  period 
to  the  proper  departmental  accounts.  The  form  and  use  of 
this  ledger  are  described  and  illustrated  on  pages  io8  et  seq. 

Cost  Accounting  Results 

The  result  of  all  this  is  the  possibility  of  learning  ac- 
curate costs  all  along  the  line — total  costs  per  capita  day, 
costs  per  capita  day  for  large  groups  of  exi^ense,  costs  per 
capita  day  for  small  detailed  items  of  expense,  and  actual 
amounts  of  expense  for  both  large  and  small  divisions. 
These,  moreover,  would  be  all  put  on  the  same  plane,  e.  g., 
compensation  would  be  all  compensation,  whether  in  wages, 
board,  or  what  not,  and  so  institutions  under  different  con- 
ditions in  such  respects  could  be  compared,  and  within  an 
institution  comparisons  could  be  made  of  different  methods. 
Only  when  this  sort  of  thing  is  done  can  any  valuable 
comparisons  be  made,  for  no  two  institutions  are  operated 
under  quite  the  same  conditions. 

Requirements  of  Cost  Comparisons 

In  the  schedule  of  current  expenses  shown  in  the  pre- 
ceding chapter,  pages  70-86,  it  is  to  be  noticed  that  some 
items  appear  for  practically  all  groups  of  accounts,  such 
as,  for  example,  salaries,  board,  rooms  or  housing,  laundry, 
express,  interest,  and  depreciation.  As  already  several  times 
suggested,  the  cost  of  no  department  is  adequately  shown 
unless  all  elements  entering  into  the  compensation  of  em- 
ployees,  whether  paid   directly  or  indirectly,  are  charged 


METHOD    OF    DETERMINING    COSTS    IN    DETAIL    103 

to  that  department;  for  otherwise  an  institution  supplying 
its  employees  with  a  portion  of  their  meals  but  no  sleeping 
apartments  or  laundry,  an  institution  furnishing  sleeping 
apartments  and  board  and  laundry,  and  an  institution  sup- 
plying none  of  these  but  only  a  direct  salary,  could  not  be 
compared  so  as  to  yield  results  of  any  value. 

Transportation  Charges 

Freight  and  express,  though  they  are  usually  items  of 
small  weight,  may  now  and  then  appear  as  of  considerable 
importance — especially  in  a  comparison  between  two  in- 
stitutions both  in  the  country  when  one  of  them  buys  in 
the  home  market  and  pays  local  prices  and  the  other  buys 
in  the  metropolitan  market  and  pays  for  transportation. 
Any  difference  of  conditions  which  has  an  effect  upon  costs, 
in  any  line  of  activity,  should  have  an  effect  also  upon  the 
accounts ;  and  these  should  indicate  all  items  in  the  circum- 
stances which  are  susceptible  of  separate  statement.  For 
this  reason  transportation  is  separately  shown  here,  even 
though  in  most  cases  it  is  intrinsically  of  little  importance. 

Interest  on  Investment 

Many  persons  of  business  experience,  and  many  ac- 
countants, deny  that  interest  on  investment  is  a  cost,  and 
they  arc  unwilling  to  show  interest  anywhere  on  a  business 
statement  except  as  a  final  deduction  from  gross  profits, 
or  as  one  element  in  the  final  net  profit.  However  advisa- 
ble may  be  this  handling  of  interest  in  businesses  of  which 
the  prime  puri>ose  is  the  making  of  profit,  wherever  we  are 
concerned  primarily  with  service  rather  than  with  profit 
we  must  recognize  the  fact  that  comparative  costs  may  be 
badly  misleading  if  this  element  is  omitted.  Whoever 
operates  with  expensive  equipment  may,  if  the  equipment 
is  well  chosen  and  the  direction  of  labor  is  efficient,  largely 
reduce  his  labor  cost  and  save  in  this  way  far  more  than 


104  COST  ACCOUNTING  FOR  INSTITUTIONS 

enough  to  oflfset  the  cost  of  keeping  up  equipment;  but,  on 
the  other  hand,  though  the  saving  arising  from  expensive 
equipment  may  be  more  than  enough  to  take  care  of  main- 
tenance and  insurance,  it  may  not  be  enough  to  make 
the  purchase  of  the  equipment  worth  while  when  one  allows 
for  interest  on  the  capital  so  locked  up.  Although  usually 
an  institution  does  not  pay  interest  upon  the  property  it  em- 
ploys, virtually  never  is  interest  negligible ;  for  either  the  in- 
stitution is  collecting,  from  outsiders,  for  the  purchase  of 
equipment,  funds  which  otherwise  it  might  employ  in  ren- 
dering a  larger  service  to  the  community,  or  else  it  is  spend- 
ing, for  equipment,  funds  which  it  might  otherwise  invest  to 
yield  a  direct  income.  It  is  hardly  conceivable  that  interest 
on  equipment  shall  be  anything  else  than  a  cost  to  any  in- 
stitution, even  though  the  interest  is  not  directly  paid  out. 
As  already  indicated,  moreover,  only  when  interest  on 
equipment  is  counted  as  a  cost  can  one  learn  whether  one 
administration  is  more  economical  than  another  in  its  pur- 
chase of  equipment  and  expenditure  for  labor. 

Depreciation 

Depreciation  has  come  in  these  days  to  be  universally 
recognized  as  one  of  the  costs  of  doing  business.  The 
rate  at  which  it  must  be  figured,  however,  is  a  debatable 
point,  and  in  any  given  case  there  may  be  a  dozen  opinions 
equally  entitled  on  the  face  of  things  to  acceptance.  The 
fundamental  principle  is  that  enough  must  be  allowed  for 
annual  depreciation  to  provide  for  repairs  and  replacement 
whenever  these  are  probably  to  be  necessary,  and  the  neces- 
sity may  arise  either  from  wear  and  tear  or  from  the  fact 
that,  with  the  advance  of  science  and  invention,  new  equip- 
ment may  prove  to  be  so  great  an  improvement  over  old 
that  an  institution  that  fails  to  purchase  it  is  not  rendering 
to  the  community  the  service  rightfully  expected  of  it. 


METHOD   OF   DETERMINING    COSTS   IN    DETAIL    105 

Additions  to  Equipment  and  Replacements 

Sometimes  confusion  exists  in  the  minds  of  persons  not 
familiar  with  accounting  as  to  the  difference  between  new 
equipment  and  replacements.  It  should  be  clearly  under- 
stood that  the  purchase  of  new  equipment  to  take  the  place 
of  old  which  has  been  worn  out  or  superseded  by  more 
recent  types  is  not  an  addition  to  the  equipment  of  the  in- 
stitution, for  the  wearing  out  of  old  equipment  is  just  as 
much  one  of  the  costs  of  doing  business  as  is  the  payment 
of  wages  and  the  consumption  of  food.  The  purchase  of 
new  equipment  replacing  old  is  nothing  but  payment  for 
equipment  displaced.  If,  again,  certain  property  in  a  de- 
partment has  been  allowed  to  depreciate  without  replace- 
ment, but  some  other  property  in  the  same  department  has 
been  increased  in  value  possibly  by  the  installation  of  better 
equipment  than  that  worn  out  or  of  a  larger  amount  of 
equipment  than  that  displaced,  it  may  be  true  that  the 
property  of  the  department  as  a  whole  has  not  depreciated 
in  value,  for  though  some  specific  property  has  depreciated 
other  property  has  more  than  made  up  the  shrinkage  in 
its  own  type.  Whether,  therefore,  the  property  of  a  de- 
partment as  a  whole  shall  be  considered  to  have  depreciated 
or  not  is  a  question  not  of  the  decrease  in  value  in  any 
particular  bit  of  equipment,  but  only  of  the  decrease  in 
the  value  of  the  property  of  the  department  as  a  whole. 
Actual  increase  should  be  charged  not  to  replacements,  but 
to  the  capital  account — equipment. 

Professional  Care  of  Patients 

The  subdivisions  of  current  expense  for  professional 
care  of  patients,  as  shown  in  the  classifications  of  the  pre- 
ceding chapter,  seem  numerous,  but  if  a  comparison  is 
to  be  made  between  two  hospitals,  or  between  different 
years  in  the  same  hospital,  one  must  know  what  type  of 


I06  COST  ACCOUNTING  FOR   INSTITUTIONS 

nursing  is  provided ;  and  any  mere  lump  figure  for  nurses 
would  leave  one  very  much  in  the  dark.  For  this  reason 
four  groups  of  nurses'  wages  are  shown,  namely :  superin- 
tending, graduate  resident,  nurses  in  training,  and  special 
nurses.  Since  the  special  nurses  are  usually  paid  by  patients, 
or  at  least  the  hospital  is  compensated  by  a  special  charge 
for  their  wages,  this  does  not  comprise  an  ultimate  cost; 
but  it  should  be  shown,  because  the  board,  rooms,  and 
laundry  of  such  nurses  are  likely  to  be  supplied  by  the 
hospital  and  charge  is  made  for  these;  so  that  necessarily 
some  costs  in  connection  with  them  get  into  the  hospital 
books,  and  therefore  all  costs  in  connection  with  them, 
even  though  those  costs  be  refunded,  should  appear.  Since, 
moreover,  our  aim  is  a  complete  record  of  current  expenses, 
rather  than  a  mere  record  of  ultimate  loss  or  gain,  we  should 
include  special  nurses'  wages  in  our  total  costs  for  the  pro- 
fessional care  of  patients.  If  a  hospital  increases  the  pro- 
portion of  graduate  resident  nurses  to  that  of  nurses  in 
training,  its  costs  will  obviously  increase;  and  only  if  these 
two  items  are  separately  shown  will  evidence  appear  clearly 
that  this  shift  of  ratio  has  occurred. 

Transfers  between  Departments 

Transfers  between  one  department  and  another  within 
an  institution  are  likely  to  be  of  frequent  occurrence.  When- 
ever these  occur,  an  error  will  creep  into  the  figures  of  costs 
of  both  departments  unless  a  proper  record  is  made  of 
that  transfer.  If,  for  instance,  supplies  are  taken  from  the 
general  medical  stores  of  the  hospital  and  sent  to  the  dis- 
pensary, care  should  be  taken  that  the  account  for  dispensary 
supplies  shall  be  debited  and  the  account  for  general  medical 
supplies,  for  the  hospital  proper,  shall  be  credited. 

Detailed  entries  for  the  process  of  closing  the  books  and 
bringing  related  items  together  are  indicated  in  Chapter  VII. 


CHAPTER  VI 
FORMS    FOR   THE   DETERMINATION    OF   COSTS 

The  forms  shown  herein  are  intended  to  provide  the 
means  of  getting  virtually  all  the  information  that  is  re- 
quired for  a  final  accurate  distribution  of  general  burden 
cost  through  the  various  departments.  It  is  unlikely  that 
in  all  institutions  the  managers  will  think  it  desirable  to 
carry  the  subdivisions  of  accounts  as  far  as  has  been  sug- 
gested in  the  foregoing  chapters.  In  that  case,  many  of 
the  forms  indicated  beyond — such,  for  instance,  as  form 
25 — will  be  unnecessary.  No  attempt  has  been  made,  in 
the  forms  shown,  to  indicate  those  which  are  essential  and 
those  which  are  merely  valuable,  for  conditions  must  de- 
termine that  in  any  case.  It  is  believed  worth  while  for 
any  institution  to  keep  the  records  completely,  and  to 
utilize  all  the  accounts  and  all  the  forms  (or  their  equiva- 
lents) here  shown;  but  if  that  seems  to  any  managers  too 
great  a  refinement  of  method,  all  the  information  here 
recommended  may  be  gathered  for  certain  short  periods 
throughout  the  year  and  may  then  be  used  to  establish 
rough  proportions  and  averages;  it  will  be  seen,  for  instance, 
that  the  accounts  and  forms  recommended  here,  if  used 
for  one  month  in  six,  or  possibly  even  a  fortnight  out  of 
each  half  year — if  that  fortnight  is  chosen  with  care  as  a 
fair  criterion  for  judging  averages — will  enable  one  to  ap- 
proximate the  costs  of  a  year  as  a  whole  without  undue 
labor  in  record  making.  Then  the  final  summary,  schedule 
IV  (page  192),  may  be  filled  out  with  something  at  least 

107 


I08  COST  ACCOUNTING  FOR   INSTITUTIONS 

approaching  accuracy.  The  ideal  condition,  however,  is 
complete  record  through  the  year. 

The  forms  have  been  devised  for  hospital  use,  but  vir- 
tually all  of  them  are  applicable,  with  mere  changes  of 
names,  to  other  institutions. 

As  a  suggestion  to  managers  intending  to  provide 
printed  copies  of  any  of  these  forms,  the  items  supposed  to 
be  filled  in  by  hand  are  here  in  italics  and  the  standard 
items  are  in  roman. 

Form  D,  Expense  Ledger 

This  form  (page  no)  shows  the  method,  to  w^hich  at- 
tention has  already  been  called,  of  handling  an  expense 
ledger.  The  purpose  of  this  ledger  is  to  show  the  details 
for  the  various  departments  without  burdening  the  general 
ledger  with  anything  but  summaries.  It  will  be  noticed 
that  every  subdivision  of  a  general-department  account  has 
in  this  form  D  two  columns,  and  that  there  is  an  additional 
pair  of  columns  for  totals.  The  intention  is  to  gather  from 
the  cash  book,  from  the  journal,  and  from  any  other  source, 
such  as  the  voucher  register,  all  items  belonging  to  any  sub- 
division of  a  department.  Then  ( i )  the  totals  for  the  sub- 
divisions may  be  added  together  to  produce  the  total  for 
the  department  for  the  month,  and  (2)  each  separate  sub- 
division may  be  treated  cumulatively  to  produce  the  total 
of  that  subdivision  for  any  group  of  months,  and  (3)  we 
may  at  the  same  time  learn  from  the  general  ledger  the 
total  for  all  subdivisions  for  any  group  of  months.  Since 
credits  to  expense  accounts  are  unusual,  no  provision  is 
made  for  a  special  column  for  credits  except  in  total.  If 
any  credits  occur  in  any  month  they  are  written  in  the 
proper  column  in  red  ink,  and  the  red  ink  items  are  added 
for  the  various  subdivisions  and  extended  into  the  total 
credit  column. 


FORMS   FOR   THE  DETERMINATION    OF   COSTS     109 

Expense-Ledger  Entries 

In  the  illustration  at  hand,  the  first  amount  entered  as 
a  debit  total  is  $85.13,  which,  as  is  indicated  by  the  posting 
check,  comes  from  the  addition  of  the  details  given  on 
page  105  of  the  voucher  register — these  details  being  $46.10 
charged  to  laundry  supplies,  $30.50  charged  to  laundry  fuel, 
$2.05  charged  to  laundry  express,  and  $6.48  charged  to 
laundry  outside  work.  The  voucher  register  is  ordinarily 
so  arranged,  through  the  medium  of  special  columns,  as 
to  show  a  total  (footing)  for  each  subdivision  (of  general- 
ledger  account)  that  is  likely  to  have  direct  charges — as, 
here,  the  four  items  shown  above.  Then  the  total  for  each 
subdivision  may  be  posted  from  the  voucher  register  directly 
to  the  expense  ledger,  as  above,  and  the  sum  of  the  totals 
may  be  entered  in  the  first  column. 

The  items  on  the  second  line  of  this  expense  ledger  are 
taken,  as  is  indicated  by  the  posting  check,  from  the  cash 
book;  and  the  $245.75  is  made  up  of  $245  in  salaries,  and 
75  cents  paid  for  express. 

The  next  line  contains  the  general  items,  which  are, 
with  few  exceptions,  closing  entries  for  distributing  burden 
or  overhead  charges  among  the  departments.  In  this  case 
it  is  obvious  that  $17.10,  originally  charged  to  salaries  of 
some  other  department,  should  be  credited  to  that  depart- 
ment and  debited  to  the  laundry,  for  the  item  comes  not 
from  the  cash  payroll,  but  from  the  journal ;  that  $95  of 
board  cost  charged  to  Transfer  Board  is  hereby  transferred 
to  the  laundry;  that  $32  is  cost  for  rooms  for  laundry  em- 
ployees, $12.60  is  laundry  cost  for  laundry  employees,  $20.25 
is  laundry  fuel  cost,  $20.09  '^  the  laundry  share  of  general 
housing  costs,  $15.70  is  interest  on  equipment,  and  $18,10 
is  depreciation. 

The  total  of  the  items  from  each  book,  extended  into 
the  debit  total  column,  indicates  the  amount  chargeable  in 


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COST  ACCOUNTING  FOR   INSTITUTIONS 


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112  COST  ACCOUNTING  FOR  INSTITUTIONS 

the  general  ledger  to  the  laundry  department  as  a  whole. 
The  credit  of  $1.49  is  obviously  a  credit  to  general  supplies 
which  have  been  transferred  from  the  laundry  department 
to  some  other.  (The  detail  is  shown,  of  course,  in  the 
journal.)  Of  course  the  cross  footing  of  the  eleven  sub- 
division totals  should  equal  the  vertical  footing  of  the  gen- 
eral total.  This  total  is  posted  hence  to  the  general  ledger. 
It  is  unnecessary  to  enter  in  the  first  column  the  total  of 
items  from  each  book,  for  the  sum  of  the  footings  of  all 
the  other  columns  will  give  the  total  figure ;  but  the  method 
shown  is  a  check  on  error. 

The  total  of  each  subdivision  is  extended,  it  will  be 
observed,  into  the  total  column  for  that  subdivision;  and 
the  total  debit  of  all  subdivisions,  as  already  noted,  is  en- 
tered in  the  first  of  the  pair  of  columns  headed  "Total," 
whence  it  is  posted  to  the  general  ledger  (here  page  53). 
It  will  be  noticed,  however,  that  under  the  "debit"  column 
in  each  pair  of  columns  for  the  subdivisions,  but  not  under 
the  column  marked  "total"  in  each  pair,  a  double  red  line 
is  ruled  at  the  end  of  each  month.  This  double  red  line 
indicates  that  addition  will  not  proceed  farther  in  that 
column ;  but  since  there  are  no  double  rulings  in  the  "total" 
column  of  the  subdivisions,  the  total  may  be  made  con- 
tinuous until  the  closing  of  the  books  at  the  end  of  the 
half  year  or  year.  Under  the  debit  column  in  the  total 
group  (which  is  the  first  pair  of  columns)  the  double  ruling 
is  provided ;  for  this  figure  is  not  continuous ;  but  since 
it  is  shown  in  the  general  ledger  and  will  appear  upon  the 
monthly  trial  balance,  the  cumulative  figure  for  the  depart- 
ment as  a  whole  may  be  found  at  any  time. 

Expense-Ledger  Results 

The  ultimate  result  of  this  arrangement  is  that  details 
are  posted  from  the  voucher  register,  from  the  cash  book, 


FORMS   FOR  THE   DETERMINATION    OF   COSTS     113 

and  from  the  journal,  to  the  subdivision  accounts  in  the 
expense  ledger;  that  these  subdivision  accounts  are  kept 
both  monthly  and  cumulatively  until  the  end  of  the  half 
year  or  year ;  that  the  total  for  the  department,  which  must 
agree  with  the  total  of  the  subdivisions  of  the  department 
for  any  month,  is  carried  monthly  to  the  general  ledger, 
whence  it  is  taken  in  total  and  carried  to  the  trial  balance : 
so  that  we  have  a  statement  of  condition  at  the  end  of 
each  month;  that,  if  we  wish  to  compare  individual  months, 
we  have  the  total  for  each  month,  both  for  the  subdivisions 
and  for  the  department  as  a  whole,  in  the  expense  ledger; 
and  if  we  wish  the  total  of  any  subdivision  for  any  number 
of  months,  we  get  it  from  the  footing  (naturally  taken 
each  month  for  test  purposes)  of  the  total  column  of  that 
subdivision.  In  the  end,  therefore,  we  have  the  total  of 
each  subdivision  and  of  the  department  as  a  whole  for  each 
month,  for  any  number  of  months,  and  for  the  half  year 
or  year  as  a  whole. 

List  of  Forms  for  Details  of  Cost  Determination 

The   following  forms  are  presented  and  discussed   in 
the  present  chapter : 
Form 

1  Registry  Book 

2  Daily  Patient  Ward  Report  (from  nurse  in  charge) 

3  Ward  Record  (kept  by  nurse  in  charge,  and  checked 

monthly  with  Patient  Summary) 

4  Monthly  Patient  Summary,  all  wards  (from  Daily 

Patient  Ward  Reports — Form  2) 
4a     Annual   Patient   Summary    (from   Monthly  Patient 
Summaries — Form  4) 

5  Monthly  Discharge  and  Death  Record  (from  Daily 

Patient   Ward    Reports — Form   2 — and   Registry 
Book — Form  i ) 


114  COST  ACCOUNTING   FOR   INSTITUTIONS 

Form 
5a     Annual  Discharge  and  Death  Record  (from  Monthly 
Discharge  and  Death  Record — Form  5) 

6  Monthly  Patient  Report  (for  trustees,  from  Monthly 

Patient   Summary — Form  4 — and   Monthly  Dis- 
charge and  Death  Record — Form  5) 
6a     Annual  Patient  Report  (for  trustees,  from  Annual 
Patient   Summary — Form  4a — and   Annual  Dis- 
charge and  Death  Record — Form  5a) 

7  Time  Sheet 

7x     Time  Sheet  Appendix  (for  employees  whose  time  is 
divided) 

8  House  Tables  Requisition  (  from  Time  Sheet — Form 

7 — made  out  in  office  and  sent  to  housekeeper  or 
dietitian) 

9  Ward  Diet  Requisition  (made  out  by  nurses  and  sent 

to  dietitian) 

10  Summary  Patient  Diet  Requisition   (made  out  by 

dietitian  from  Ward  Diet  Requisitions — Form  9 — 
and  sent  to  housekeeper) 

11  Requisition  on  the  Steward's  Department  (based  on 

House  Tables  Requisition — Form  8 — and  Sum- 
mary Patient  Diet  Requisition — Form  10 — and 
made  out  by  the  housekeeper) 
I2W  Weekly  Dietary  Summary  (from  House  Tables 
Requisitions — Form  8 — and  Summary  Patient 
Diet  Requisitions — Form  10) 

12  Monthly   Dietary   Summary    (similar   to    I2w,   but 

adding   the   last   three   days   and   combining  the 
weeks) 

13  Calculation  of  Special  Food  Costs   (from  Requisi- 

tions on  Steward's  Department — Form   11 — and 
purchase  records  of  prices  of  food) 
14W    Weekly   Summary  of   Special   Food   Costs    (from 


FORMS   FOR  THE   DETERMINATION    OF  COSTS    115 

Form 

Calculations  of  Special  Food  Costs — Form  13 — 
and  Weekly  Dietary  Summary — Form  I2w) 

14  Monthly  Summary  of  Special  Food  Costs   (similar 

to  14W,  but  adding  the  last  three  days  and  com- 
bining the  weeks) 

15  Calculation  of  Occasional  Common  Food  Costs  (from 

Requisitions  on  Steward's  Department — Form  1 1 
— ^and  purchase  records  of  prices  of  food) 
i6w  Weekly  Summary  of  Occasional  Common  Food 
Costs  (from  Calculations  of  Occasional  Common 
Food  Costs — Form  15 — and  Weekly  Dietary 
Summary — Form  I2w) 

16  Monthly   Summary   of   Occasional   Common   Food 

Costs  (similar  to  i6w,  but  adding  the  last  three 
days  and  combining  the  weeks) 

17  Calculation  of  Regular  Common  Food  Costs  (from 

inventories,  purchase  records,  and  Monthly  Dietary 
Summary — Form  12) 

18  Summary  of  Average  Food  Costs  (from  Summary 

of  Special  Food  Costs — Form  14 — Summary  of 
Occasional  Common  Food  Costs — Form  16 — and 
Calculation  of  Regular  Common  Food  Costs — 
Form  17 — and  Monthly  Dietary  Summarv — Form 
12) 

19  House  Tables  Record  (from  Time  Sheet — Form  7) 

20  Distribution   of    Food    Costs    (from    Summary   of 

Average  Food  Costs — Form  18 — Monthly  Patient 
Summary — Form  4 — and  House  Tables  Record — 
Form  19) 

21  Engineer's  Daily  Time  Card 

22  Engineer's  Monthly  Summary 

23  Space-Cost  Basis 

24  Space-Cost  Distribution 

25  Monthly  Record  of  Ice 


Il6  COST  ACCOUNTING   FOR   INSTITUTIONS 

Form  I — Registry  Book 

On  the  Registry  Book  attempt  is  made  to  give  all  the 
information,  other  than  medical,  which  it  is  desirable  to 
keep  for  any  one  of  four  purposes :  first,  identification  of 
the  patient;  second,  financial  responsibility;  third,  general 
statistical  information,  including  that  which  will  enable  one 
to  determine  the  costs  of  service ;  fourth,  physical  condition 
of  the  patient  at  discharge. 

Each  patient  on  entrance  is  given  a  number,  as  shown 
in  the  first  column.  This  number  is  not  repeated,  even 
though  the  patient  returns  later ;  but  the  fact  of  return  may 
be  shown  by  an  additional  memorandum,  after  the  name 
of  the  patient,  showing  the  number  given  to  the  patient  on 
his  first  arrival  and  any  subsequent  number  given  him  on 
returns  prior  to  this.  The  column  headed  "Notify"  con- 
tains the  name  of  the  person  who  is  to  be  informed  in  case 
of  emergency.  The  next  column  indicates  the  person 
financially  responsible  for  the  payment  of  charges,  or,  if 
the  name  is  in  parenthesis,  recommending  credit.  The  next 
five  columns  contain  records  requiring  no  comment,  but  they 
should  be  filled  accurately,  so  that  statistics  regarding  the 
social  and  economic  standing  of  patients  may  be  available. 
The  record  of  ward,  or  room,  is  of  importance  not  merely 
as  a  guide  in  finding  the  patient,  but  as  an  indication  of 
the  department  of  the  institution  chargeable  with  the  costs 
of  board,  etc.  In  the  column  for  the  date  of  entry  the  small 
number  at  the  -right  and  above  the  date  indicates  the  time 
of  entry  (that  is,  the  last  meal  served  before  entry).  If 
the  same  plan  is  followed  after  the  date  of  discharge,  the 
difference  in  dates  indicates  the  total  number  of  days'  board, 
with  any  fractions  of  days,  chargeable  to  the  patient.  This 
is  important  for  statistical  purposes  even  if  it  is  not  used 
in  determining  charges  to  the  patient;  for  example,  if  the 
number  in  the  column  headed  "Total  days"  is  21  ^  it  indi- 


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cates  sixty-four  meals  served — twenty-one  days  and  one 
meal  over. 

Form  2 — Daily  Patient  Ward  Report 

Form  2  is  a  daily  report  for  a  ward,  and  contains  all 
information  necessary  for  the  calculations  of  daily  costs 
and  for  the  completion  of  the  registry  record.  Since  it  is 
to  be  made  out  daily,  the  number  admitted,  the  number 


FORM  3 


Day,  January  2,  igi2 
Daily  Med.  A  Ward  Patient  Report 


Number  of  patients,  morning 
Number  admitted 

28 

I 

Number  under  treatment 
Number  discharged 
Number  died 

29 
0 

I 

Number  remaining,  evening 

28 

Special  diet  days  * 
House  diet  days  * 
Fever  diet  days  * 

25 

I 

Total  diet  days  * 

272 

DISCHARGES 


Registry  numbers  of  individual  patients 

Cured 

Improved 

Not  Improved 

Died 

147 

*In  days  and  thirds  of  days  (meals). 


FORMS   FOR  THE  DETERMINATION    OF  COSTS     119 

discharged,  and  the  number  died,  should  be  always  the 
number  since  the  report  of  the  preceding  day.  The  second 
part  of  this  report  shows  the  number  of  patients  in  each 
of  the  main  classes  of  diet.  This  figure  is  used  in  the  dis- 
tribution of  food  costs.  The  last  part  of  the  report  gives 
the  condition  of  patients  leaving.  It  gives  not  the  number 
of  patients,  but  the  registry  number  of  each  patient,  dis- 
charged as  cured,  improved,  not  improved,  died.  This  re- 
port should  be  sent  by  the  head  nurse  in  each  ward  to  the 
office  at  a  specified  hour  daily,  and  should  cover  preferably 
figures  until  midnight  of  the  preceding  day. 

Form  3 — Ward  Record 

This  form  is  virtually  a  duplicate  of  form  2,  but  it 
contains  the  record  for  all  the  days  of  the  month  on  the 
same  sheet,  and  it  should  be  kept  in  the  ward.  At  the  end 
of  each  month,  the  nurse  in  charge  of  each  ward  should 
send  to  the  office  the  final  figure  for  the  month  on  a 
daily  patient  report  blank  (form  2)  with  the  word  "daily" 
changed  to  "monthly."  The  office  will  then  have  means 
of  comparing  its  own  figures  for  the  summary  of  all  wards 
with  the  total  of  the  summaries  kept  by  the  head  nurses, 
and,  therefore,  will  see  that  the  monthly  ward  record  kept 
by  the  nurse  of  each  ward  is  kept  accurately.  Only  thus 
is  it  possible  to  know  that  no  discrepancies  creep  in  between 
the  nurses'  daily  reports  and  the  office  monthly  report. 

The  only  difference  between  form  3  and  form  2,  except 
for  the  larger  content,  is  the  provision  for  avoidance  of 
duplication  in  the  total  number  of  patients  in  the  last  column. 
The  number  of  patients  at  the  beginning,  of  course,  should 
be  not  the  sum  of  the  number  of  patients  for  each  day, 
but  only  the  number  of  patients  on  the  morning  of  the 
first  day.  The  number  under  treatment  should  be  not  the 
sum  of  the  numbers  under  treatment  for  all  days,  but  may 


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FORMS   FOR  THE  DETERMINATION    OF  COSTS     121 

be  the  average  of  such  numbers.  The  number  remaining 
at  the  end  of  the  month  is  not  the  sum  of  the  numbers 
remaining  each  day,  but  the  number  remaining  on  the  even- 
ing of  the  last  day.  On  the  other  hand,  the  sum  of  the 
number  under  treatment  for  all  days  must  agree,  except 
for  the  fractions  of  days,  with  the  total  diet  days  as  shown 
in  the  second  portion  of  the  record.  So  far  as  there  is 
any  overlapping  of  fractions,  there  will  be  a  slight  dis- 
crepancy; for  the  purpose  of  the  figure  in  the  first  half  of 
the  record  is  to  show  the  average  use  of  the  ward  by  patients 
(indicating  how  nearly  it  is  used  to  full  capacity),  while 
the  purpose  in  the  second  half  of  the  record  is  to  get  statis- 
tical figures  for  the  distribution  of  food  costs. 

Form  4 — Monthly  Patient  Summary 

This  summary  is  made  up  in  the  office,  and  consists 
principally  of  a  total  of  the  daily  ward  reports  of  the  month. 
If  all  the  monthly  ward  reports,  made  by  the  head  nurse 
in  each  ward,  were  added  together,  as  they  should  be  for 
test  purposes,  the  result  would  be  for  each  day  the  figure 
shown  here.  The  figures  for  the  month,  on  the  other  hand, 
are  not  just  the  sums  of  the  daily  figures ;  for,  as  indicated 
in  the  comment  on  form  3,  the  number  in  the  hospital  at 
the  beginning,  the  number  under  treatment,  and  the  number 
in  the  hospital  at  the  close,  should  not  be  totals.  For  this 
summary  it  is  desirable  to  show  the  number  of  different 
persons  under  treatment,  as  the  sum  of  the  two  preceding 
items  (not  the  sum  of  all  the  days  on  that  line).  It  is 
desirable  also  to  show  the  average  number  under  treatment ; 
this  will  be  not  only  the  average  of  the  figures  of  the  line 
above  on  this  summary  report,  but  also  (allowing  for  a 
slight  variation  because  of  dropped  or  taken  fractions)  an 
average  of  the  similar  items  on  the  ward  records.     A  com- 


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124  COST  ACCOUNTING  FOR   INSTITUTIONS 

parison  of  the  two  calculations  will  serve  as  a  check  on 
error. 

The  last  item  on  the  first  part  of  this  summary,  total 
number  of  meals,  is  new,  and  is  obtained  by  multiplying 
the  total  diet  days  by  three.  It  gives  the  total  number  of 
meals  served  during  the  month,  and  is  required  in  order 
to  make  possible  the  proper  distribution  of  food  costs  for 
articles  which  are  common  not  only  to  all  diets  but  also  to 
all  meals — such  as  flour,  butter,  sugar,  milk,  etc.  Another 
new  item  on  this  summary  is  the  "largest  number  under 
treatment  any  day."  This  shows  how  largely  in  any  day 
the  institution  was  run  at  full  capacity.  Since,  however,  this 
figure  might  misrepresent  the  facts  by  putting  undue  em- 
phasis upon  a  large  number,  a  supplementary  statement, 
"duration  of  that  number,"  should  show  whether  it  was 
mere  chance  or  is  more  or  less  frequent.  Similarly,  the 
"smallest  number  under  treatment  any  day"  indicates  the 
minimum  use  of  the  plant,  and  the  supplementary  statement, 
"duration  of  that  number,"  indicates  whether  the  condition 
is  normal  or  extreme.  On  this  summary  is  also  added  the 
distribution  of  diet  days  between  wards  and  private  rooms. 
The  figures  are  taken  from  the  daily  ward  reports,  of 
course;  for  the  office  knows  for  each  report  whether  the 
ward  or  room  named  falls  within  one  or  the  other  category. 
These  figures  are  important  in  determining  our  costs  for 
patients  in  wards  as  compared  with  those  for  patients  in 
private  rooms. 

Form  4a — Annual  Patient  Summary 

This  is  identical  in  purpose,  and  to  a  great  extent 
identical  in  form,  with  form  4.  It  gives  a  summary  for* 
the  year,  and  substitutes  monthly  for  daily  figures  and  an 
annual  for  a  monthly  total  or  average. 


FORMS    FOR   THE   DETERMINATION    OF   COSTS 


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126  COST  ACCOUNTING   FOR   INSTITUTIONS 

Form  5 — Monthly  Discharge  and  Death  Record 

Since  the  monthly  discharge  and  death  record  should  be 
kept  with  great  accuracy,  not  only  for  statistical  purposes 
but  because  of  the  fact  that  it  deals  with  persons  and  not 
with  things,  it  may  well  appear  on  a  separate  statement 
rather  than  as  a  part  of  the  Monthly  Patient  Summary.* 
It  is  desirable,  moreover,  to  know,  in  addition  to  the  in- 
dividual discharge  and  the  condition  at  discharge,  the  num- 
ber of  days  for  which  the  individual  was  in  residence  at 
the  hospital;  for  if  the  hospital  is  one  of  last  resort  its 
proportion  of  deaths  will  be  high,  and  the  fact  that  it  is 
of  last  resort  will  be  somewhat  indicated  by  the  fact  that 
the  average  time  of  residence  within  the  hospital  is  short. 
For  each  class  of  patients  discharged  (cured,  improved,  not 
improved,  died),  therefore,  there  should  be  a  record  of  the 
individual  registry  numbers  of  the  patients,  and  the  number 
of  days  of  residence;  to  these  figures  should  be  appended 
the  totals,  so  that  the  check  on  error  or  omission  will  be 
complete.  To  this  general  statement  should  be  added  three 
statistical  items — the  longest  stay  for  any  patient  discharged 
during  the  month  (which  may  be  easily  learned  by  running 
through  the  days  shown  under  each  group)  ;  the  condition 
of  that  patient  at  discharge;  and  the  average  stay  of  all 
patients  discharged  during  the  month  (which  is  found  by 
dividing  the  total  days  by  the  total  number  of  patients). 
The  average  stay  for  each  group  can  be  shown  easily  if 
desired;  but  in  the  forms  used  here  it  is  shown  on  the  an- 
nual record  only,  and  is  deemed  hardly  valuable  for  the 
monthly  record  unless  peculiar  circumstances  have  arisen. 

•  In  some  institutions  a  discharge  number  is  given  every  patient  and  recorded 
on  a  form  consisting  of  two  columns  only — the  first  giving  the  entry  number  and 
the  second  the  discharge  number.  Entry  is  made  only  when  a  patient  leaves  or 
dies.  The  difference  between  the  last  entry  number  on  the  Registry  Book  and 
the  last  discharge  number  on  the  Discharge  Book  is  the  number  of  patients  in  the 
hospital.     This  is  a  good  check  on  error,  but  serves  no  other  purpose. 


FORMS   FOR  THE   DETERMINATION    OF   COSTS 


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FORMS   FOR  THE  DETERMINATION    OF   COSTS     129 

Form  5a — Annual  Discharge  and  Death  Record 

Form  5a  is  similar  to  form  5,  but  substitutes  months 
for  days,  and  gives  the  average  stay  by  groups  (cured, 
improved,  not  improved,  died).     (See  opposite  page.) 

Form  6— Monthly  Patient  Report 

The  superintendent  of  the  hospital  should  make  to  the 
trustees  or  governing  board  a  monthly  report  containing 
a  summary  of  those  items  concerning  which  the  board  will 
desire  information;  but  this  report  should  be  brief  and 
therefore  should  not  contain  quite  so  much  information 
as  the  superintendent  will  require  for  his  own  guidance. 
This  form  is  intended  to  suggest  the  desirable  information. 
All  the  figures  recorded  here  are  obtainable  from  reports 
and  records  already  discussed.     (See  page  130.) 

Form  6a — Annual  Patient  Report 

This  is  practically  identical  with  form  6;  it  differs  only 
in  substituting  annual  for  monthly  figures.    (See  page  131.) 

Form  7 — Time  Sheet    [Illustrated  on  page  132.] 

In  attempting  to  divide  the  cost  of  board,  room,  laundry, 
etc.,  for  employees  among  the  various  departments  which 
they  serve,  it  is  necessary  to  have  complete  information 
with  regard  to  their  assignments.  This  form  is  intended 
to  suggest  how  such  information  may  be  kept  in  connection 
with  the  ordinary  calculation  of  payroll,  and  without  much 
labor  beyond  that  required  for  the  simplest  form  of  payroll. 
The  first  column  (beyond  the  name)  shows  the  type  of 
table  board  served  to  each  employee,  and  indicates  there- 
fore which  of  the  various  rates  of  board  is  to  be  used  in 
charging  the  department  served  by  the  employee.  The 
second  column  indicates  the  specific  board  account  charge- 
able for  this  employee's  board — that  is.  which  departmental 
board  account  is  so  chargeable.     All  the  other  columns  but 


130 


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FORMS   FOR  THE  DETERMINATION    OF  COSTS     133 

one  are  of  the  usual  type  for  a  time  sheet.  The  exception, 
which  is  headed  "wages  account,"  indicates  the  account 
chargeable  for  the  wages  alone — that  is,  which  depart- 
mental wages  account  is  chargeable.  These  columns  are* 
disposed  on  the  sheet  in  this  fashion  because  the  charge 
to  a  wage  account  will  be  determined  by  the  amount  shown 
on  the  time  sheet,  and  therefore  the  two  columns  should 
be  in  close  proximity ;  but  the  board  account  is  more  closely 
associated  with  the  name  of  the  individual  than  with  the 
amount  of  the  wages,  and  hence  is  given  first.  The  group- 
total  time  is  then  shown  in  close  proximity  to  both  the 
board  account  and  the  wages  account,  for  no  intervening 
items  occur.     (See  page  132.) 

In  case  the  board  and  wages  of  any  individual  are  di- 
vided between  two  departments,  or  two  subdivisions  of 
a  department,  the  amount  should  not  appear  upon  this  sheet, 
but  should  be  entered  on  a  separate  sheet,  form  7X.  The 
totals  of  form  7x,  however,  should  be  transferred  to  this 
sheet,  so  that  this  sheet  may  be  complete  for  departments 
and  subdivisions  of  departments,  even  though  it  is  not  com- 
plete for  all  individuals.  To  put  the  subdivisions  for  in- 
dividuals on  such  a  sheet  as  this  would  unnecessarily  either 
cumber  this  sheet  or  split  wages  for  individuals  between 
several  departments.  Under  this  plan  of  a  special  divided 
time  sheet,  all  the  items  for  any  department,  and  for  any 
person  whose  work  is  not  divided,  are  in  one  place,  namely, 
the  time  sheet ;  and  all  items  for  the  wages  of  any  indi- 
vidual whose  time  is  divided  are  in  one  place,  namely,  the 
time  sheet  appendix. 

Form  7x — Time  Sheet  Appendix 

The  purpose  of  this  form  has  been  indicated  in  the  dis- 
cussion of  form  7.  In  the  main,  the  detailed  working  out 
is  suggested  by  the  form  itself;  but  one   should  observe 


134  COST  ACCOUNTING  FOR   INSTITUTIONS 

that  if  any  board  account  (and,  of  course,  the  corresponding 
wages  account)  occurs  more  than  once,  the  times  and 
amounts  indicated  should  be  added  together  to  produce  a 
'total  for  transfer  to  form  7;  for  the  purpose  of  yx  is  to 
gather,  on  the  basis  of  board  accounts  and  wages  accounts, 
the  items  which  are  on  the  upper  half  of  yx  scattered  in  con- 
nection with  the  time  of  various  individuals.  In  other 
words,  since  the  unit  of  this  sheet  is  the  employee,  and  the 
employees  cannot  here  be  classified  upon  the  basis  of  the  de- 
partments which  they  serve,  the  data  referring  to  each  de- 
partment must  be  picked  out  and  combined  in  the  summary 
shown  in  the  lower  half  of  the  form.  On  this  summary,  it 
will  be  observed,  the  first  two  board  accounts  to  be  debited 
(ASb  and  ATb)  have  only  one  item  each;  the  next  (DKb) 
is  charged  in  part  from  the  record  of  P.  Jones  and  in  part 
from  the  record  of  S.  Brown ;  the  next  comes  in  part  from 
Jones's  record  and  in  part  from  Brown's;  the  next  is  a 
part  of  Jones's  only ;  and  the  last  is  a  part  of  Smith's  only. 
The  wages  items  are  similarly  determined.  Because  of  the 
possibility  of  carelessness  in  summarizing  the  details  of 
the  upper  half  of  the  sheet,  the  totals  to  be  transferred  to 
form  7  should  be  proved  by  comparison  with  those  for  the 
first  half  of  the  sheet.  Since  total  time  shown  on  the  sum- 
mary should  agree  with  the  total  time  shown  in  detail 
for  the  individuals,  a  comparison  is  readily  made ;  the  total 
amount  of  wages  shown  on  the  summary  should  agree  both 
with  the  sum  of  all  the  individual  items  of  wages  shown 
on  the  first  half  of  the  statement  and  with  the  sum  of  the 
totals  shown  on  the  first  half  of  the  statement.  Thus  there 
is  a  check  on  time  and  a  double  check  on  amounts. 

On  all  forms  emphasis  should  be  laid  upon  the  impor- 
tance of  checking  all  additions  by  comparing  group  totals 
with  individual  totals,  and,  where  opportunity  is  afforded, 
of  comparing  cross  additions  with  vertical  additions. 


FORMS   FOR  THE   DETERMINATION    OF   COSTS 


135 


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136 


COST  ACCOUNTING  FOR   INSTITUTIONS 


Form  8 — House  Tables  Requisition 

The  table  manager  in  any  institution  must  know  for 
how  many  persons  he  is  providing,  and  therefore  the  office 
should  notify  him  for  each  meal  of  the  number  of  persons 
to  be  served  in  each  group  of  board.  In  small  institutions 
with  a  constant  staff  this  notification  need  be  sent  only 
when  changes  occur;  and  in  very  large  institutions,  where 
a  difference  of  two  or  three  persons  is  negligible,  notifica- 
tion would  be  sent  only  when  important  or  cumulative 
changes  have  occurred. 


FORM  8 


Meal  Br.  Date  Jan.  2,  1912 
House  Tables  Requisition 

Group  A 
Group  B 
Group  C 

Total 

II 

39 
28 

78 

Form  9 — Ward  Diet  Requisition 

Wherever  foods  of  a  special  type  are  required,  the  head 
nurse  in  each  ward  must  make  a  requisition  specifying  the 
number  of  services  of  special  diets  (where  the  type  of  diet 
is  prescribed)  and  the  special  dishes  (where  the  diet  is 
individual).  This  form  is  to  be  sent  to  the  office,  or  directly 
to  the  table  manager,  for  each  meal. 

The  illustration  of  this  form  will  be  found,  parallel  with 
its  counterpart,  form  10,  on  page  137.  The  latter  is  similar, 
except  for  its  greater  content,  for  it  summarizes  the  figures 
of  requisition  for  all  wards. 


FORMS   FOR  THE  DETERMINATION    OF   COSTS 


137 


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138  COST   ACCOUNTING   FOR   INSTITUTIONS 

Form  10 — Summary  Patient  Diet  Requisition 

The  information  contained  in  form  9  from  the  various 
wards  should  be  summarized  on  a  similar  form  for  the  table 
manager.  The  original  of  form  9  should  then  be  sent 
to  the  serving  department  for  guidance  in  the  distribution 
of  food  prepared.     ( See  preceding  page. ) 

Form  II — Requisition  on  the  Steward's  Department 

If  one  is  to  determine  accurately  food  costs,  one  must 
know  not  only  how  much  food  of  each  type  goes  into  each 
dietary,  but  also  at  what  cost.  Someone  must  know  what 
is  to  be  withdrawn  from  stores  for  each  type  of  dietary; 
and  to  preserve  these  figures  in  the  form  of  a  well-arranged 
requisition  on  the  steward's  department  requires  no  addi- 
tional labor.  Those  foods  used  in  one  type  of  dietary  only 
are  extended  into  the  appropriate  columns  for  that  dietary : 
the  amount  for  which  requisition  is  made  should  be  ex- 
tended in  the  column  marked  "issued,"  the  amount  returned 
(if  any)  after  the  meal  has  been  prepared  should  be  ex- 
tended in  the  column  marked  "returned,"  and  the  amount 
consumed  should  appear  as  "net."  Amounts  called  for  in 
excess  of  the  amounts  actually  used  must  always  be  re- 
turned to  the  store-room  and  entered  upon  this  requisition 
sheet.  Otherwise  there  is  great  danger  of  loss,  or  mis- 
placement, or  failure  to  account  for  supplies  used.  If  any 
articles  of  diet  are  common  to  two  or  more  types  of  dietary, 
indication  of  that  fact  should  be  made  on  the  requisition; 
but  it  is  not  necessary  to  divide  the  total  into  the  amounts 
required  in  each  dietary,  for  since  such  items  are  to  be 
distributed  among  the  types  of  dietary  monthly  on  a  cal- 
culated basis,  they  may  be  kept  together  and  charged  to 
the  common  dietary  until  the  monthly  figures  have  been 
obtained.     Such  common  participation  in  any  foods  is  in- 


FORMS    FOR   THE   DETERMINATION    OF   COSTS     139 

dicated  on  the  form  by  lines  extending  from  the  figures 
through  the  columns  for  the  dietaries  concerned.  As  in- 
dicated on  the  blank,  Dietary  A,  in  this  particular  classifica- 
tion, comprises  special  diet  and  the  highest  class  of  table 
board  for  employees,  such  as  that  for  the  superintendent, 
the  resident  physicians,  and  head  nurses.  Dietary  B  com- 
prises the  general  house  diet  served  in  wards,  and  the  diet 
for  nurses,  orderlies,  and  other  employees  above  the  servant 
class.  Dietary  C  comprises  the  diet  served  to  employees 
of  the  servant  class.  Dietary  D  comprises  fever  diet  only. 
These  subdivisions  vary,  of  course,  both  in  number  and 
content,  between  institutions. 

In  many  institutions  food  is  ordered  from  the  steward's 
department  daily.  This  simplifies  ordering,  but  it  leaves 
open  greater  likelihood  that  food  ordered  for  one  dietary 
shall  be  used  in  another  without  credit.  The  form  shown 
here  allows  credits  by  entries  in  the  columns  headed  "re- 
turned," with  corresponding  debits  in  the  columns  headed 
"issued,"  for  the  dietaries  taking  the  unused  foods. 

The  form  which  follows  is  not  intended  to  displace  the 
common  form  of  requisition  for  open-stock  foods.  Spices, 
flour,  sugar,  cereals,  tea,  coffee,  etc.,  are  not  usually  ordered 
from  the  steward's  department  for  single  meals  or  days,  of 
course,  but  in  convenient  quantities  for  use  in  the  kitchen 
as  occasion  arises;  and  they  are  for  use  usually  in  all  classes 
of  dietary.  They  may  well  be  ordered  on  separate  requisi- 
tion slips,  known  as  open-stock  requisitions  (possibly  desig- 
nated form  iiO)  ;  they  would  not,  however,  enter  into  the 
cost  calculations,  except  for  checking  purposes,  for  the  cost 
of  such  open-stock  foods  is  to  be  learned  from  inventories 
checked  by  the  open-stock  requisitions.  This  form  iiO 
should  have  printed  upon  it  the  name  of  all  such  common 
open-stock  foods;  but  since  returns  are  not  common,  only 
one  column  for  amounts  is  necessary. 


140 


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FORMS    FOR   THE   DETERMINATION    OF   COSTS     141 

Forms    i2w    and    12 — Dietary    Summaries    Weekly    and 
Monthly 

It  is  necessary  in  distributing  food  costs  at  the  end  of 
any  week,  month,  or  year,  to  know  the  total  number  of 
meals  served  in  each  class  of  dietary ;  for  only  when  this 
is  done  can  distribution  be  made  between  the  various  types 
of  patients  and  the  various  departments  having  employees. 
The  monthly  dietary  summary  should  therefore  show  ex- 
actly or  approximately  for  each  meal  of  each  day  the  num- 
ber of  persons  in  each  class  of  dietary.  These  figures  are 
obtained  readily  from  form  10  (the  summ'ary  of  the  patient 
diet  requisition  made  out  from  the  head  nurses'  meal 
slips)  and  from  form  8  (which  is  the  office  statement  of 
the  number  of  employees  to  be  given  each  type  of  dietary). 
Since  a  sheet  for  a  whole  month  would  be  too  bulky,  four 
weekly  sheets  and  a  summary  sheet  adding  the  extra  days 
are  recommended. 

As  a  means  of  determining  average  costs  for  employees 
and  for  patients  as  well  as  per  capita,  it  is  necessary  to 
know  not  only  the  grand  total  but  how  many  of  the  people 
served  are  patients  and  how  many  are  employees ;  therefore 
on  the  last  line  of  form  12  is  given  the  total  number  of 
days'  board  for  employees — which,  of  course,  is  the  total 
of  the  columns  headed  "A  house,"  "B  house,"  and  "C 
house."  The  figures  are  repeated  for  clearness.  For  check- 
ing purposes,  the  number  of  meals  is  divided  by  three  to 
give  the  total  days.  The  total  days  here  shown  for  patients 
classified  by  dietary  should  agree  with  the  total  days  re- 
ported on  form  4  for  the  corresponding  groups.  A  slight 
discrepancy  might  arise  from  the  conversion  of  fractions, 
however.  The  total  days  for  employees  should  agree  with 
the  total  shown  by  form  7.  On  all  forms,  as  already  sug- 
gested, totals  should  be  taken  not  only  vertically  but  hori- 
zontally in  order  that  there  may  be  perfect  correctness  of 


142 


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FORMS   FOR  THE  DETERMINATION   OF   COSTS     143 


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144  COST  ACCOUNTING   FOR   INSTITUTIONS 

figures.  Here,  for  instance,  on  the  monthly  summary  the 
grand  total  of  meals  served,  17,579,  should  be  the  sum 
not  only  of  the  figures  above  it  in  the  column  for  grand 
total,  but  also  the  sum  of  the  four  group  totals  at  the  left 
on  the  same  line,  for  each  of  these  totals  is  the  sum  of  a 
column  of  which  the  details  go  to  make  up  the  grand  total. 

Since  later  we  shall  need  to  know  the  sum  of  certain 
combinations  of  groups  (for  form  16),  they  are  shown  here 
at  the  bottom  of  form  12.  Proof  of  correctness  is  found 
by  subtracting  D  from  the  grand  total  (since  it  is  not  in 
any  combination)  and  multiplying  the  difference  by  three 
(since  each  group  is  used  three  times). 

Strong  temptation  occurs  in  most  large  institutions  to 
say  that  two  or  three  persons  more  or  fewer  make  no  differ- 
ence in  food  costs  and  therefore  need  not  be  regarded  in 
the  figuring.  Whether  that  is  true  or  not,  it  is  a  fact  that 
a  slight  inaccuracy  known  and  neglected  leads  to  a  growing 
tolerance  of  inaccuracy,  and  usually  results  in  .inaccuracy 
that  is,  or  should  be,  intolerable.  An  indefinite  margin  of 
inaccuracy  usually  results  in  worthless  figures.  For  this 
reason,  form  i2w  is  carried  out  in  detail  for  each  meal 
rather  than  left  with  an  approximate  figure  for  each  day. 
With  a  reasonable  degree  of  accuracy,  of  course,  the  latter 
would  serve  for  most  purposes.  Then  form  i2w  and  form 
12  would  be  combined,  with  a  line  for  each  day. 

Form  13 — Calculation  of  Special  Food  Costs 

The  calculations  of  food  cost  may  now  begin  with  those 
foods  entering  into  one  diet  only.  We  already  have,  on  the 
summary  patient  diet  requisition  (form  10),  and  on  the 
requisition  on  the  steward's  department  (form  11),  all 
items  not  open-stock  entering  into  each  dietary.  If  the 
items  actually  consumed  in  each  class  of  dietary,  and  in  that 
alone,  are  entered  on  a  new  form  at  the  cost  known  to 


FORMS   FOR   THE   DETERMINATION    OF   COSTS    145 


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146  COST  ACCOUNTING  FOR   INSTITUTIONS 

the  office,  the  sum  of  all  such  items  will  give  the  charge 
to  each  dietary  for  the  special  foods  consumed.  These 
items  are  figured  for  each  meal.  As  a  matter  of  fact,  how- 
ever, for  most  meals  they  are  likely  to  be  either  few  or 
entirely  absent,  for  most  food  is  either  common  to  all 
dietaries  or  to  several. 

If  the  custom  is  to  fill  out  form  11  (requisition  on  the 
steward's  department)  only  daily,  this  form  13  will  be  a 
daily  sheet,  of  course,  and  no  attempt  will  be  made  to 
calculate  on  it  for  individual  meals. 

Forms  14W  and  14 — Summaries  of  Special  Food  Costs- 
Weekly  and  Monthly 

To  these  forms  are  carried  from  form  13  the  total  costs 
of  special  food  for  the  various  dietaries  for  each  meal,  and 
from  form  I2w  and  form  12  the  number  of  persons 
served.  A  total  of  these  items,  for  each  dietary,  for  the 
month,  gives  the  total  cost  of  special  food  and  the  total 
number  of  meals  served  for  each  dietary.  A  division  of  the 
former  by  the  latter  gives  the  average  cost  of  food,  for 
each  type  of  dietary,  for  the  foods  peculiar  to  that  dietary. 
These  figures  multiplied  by  three  give  the  average  daily 
cost. 

Form  14W,  like  form  I2w,  is  for  the  week,  and  form 
14  combines  the  weeks  and  adds  the  extra  days  to  make 
the  month.  The  averages  at  the  bottom  of  form  14W  may 
be  of  service  to  enable  the  manager  to  watch  his  costs ;  but 
they  are  not  used  in  the  final  books,  for  the  monthly  averages 
supplant  them,  as  shown  on  form  14.  ' 

If  the  requisitions  on  the  steward's  department  (form 
11)  are  made  out  for  a  day  at  a  time,  form  13  becomes  a 
calculation  of  daily  food  cost,  and  form  14W  and  form  14 
may  be  combined;  for,  with  only  thirty-one  items  for  any 
month,  one  sheet  may  cover  it. 


FORMS   FOR  THE  DETERMINATION    OF  COSTS     147 

FORM  14W  Month  of  January,  iQia 

Week  I-'; 

Weekly- Summary  of  Special  Food  Costs 


Dietary 

A 

B 

C 

D 

Day  Meal 

Cost 
(Form  13) 

Cost 
(Form  13) 

Cost 
(Form  13) 

Cost 
(Form  13) 

1  Breakfast 
Dinner 
Supper 

2  Breakfast 
Dinner 
Supper 

3  Breakfast 
Dinner 
Supper 

4  Breakfast 
Dinner 
Supper 

5  Breakfast 
Dinner 
Supper 

6  Breakfast 
Dinner 
Supper 

7  Breakfast 
Dinner 
Supper 

8.00 

750 

1.08 

4 
.36 

Total 

• 

Meals  served  (Form  I2w) 
Average,  meal 
Average,  day 

148  COST  ACCOUNTING   FOR   INSTITUTIONS 

FORM  14  Month  of  January,  IQ12 

Monthly  Summary  of  Special  Food  Costs 


Dietary 

A 

B 

C 

D 

Day  Meal 

Cost 

Cost 

Cost 

Cost 

(Form  13) 

(Form  13) 

(Form  13) 

(Form  13) 

29     Breakfast 

Dinner 

Supper 

30    Breakfast 

Dinner 

Supper 

31     Breakfast 

Dinner 

Supper 

I-  7 

8-14 

15-21 

22-28 

Total 

166.56 

379  50 

24.50 

27.60 

Meals  served  (Form  12) 

2,823 

11,385 

2,451 

920 

Average,  meal 

.039 

■033 

.01 

■03 

Average,  day 

.177 

.099 

■03 

.09 

Form  15 — Calculation  of  Occasional  Common  Food  Costs 

The  cost  of  foods  common  to  two  or  more  dietaries 
may  be  figured  for  each  meal  in  a  fashion  similar  to  that 
used  in  finding  the  special  food  costs.  On  this  form  15 
should  be  entered,  however,  only  items  which,  though  com- 
mon to  several  dietaries,  are  not  common  to  all  meals — 
such,  for  instance,  as  vegetables  and  fruits.  The  cost  of 
foods  common  to  all  meals,  of  course,  may  be  taken  for 
longer  periods  and  so  simplify  the  labor  of  calculation.  On 
this  form,  therefore,  should  be  entered  for  any  meal  all 


FORMS    FOR   THE   DETERMINATION    OF   COSTS     149 


•5 

Is 


o 

o  o. 

oe 

o  ^ 
tfl'g. 


+ 


+ 

<3 


+ 


+ 
+ 


o  o 


en 

§^ 

§^ 

^  a  -2 


150  COST  ACCOUNTING   FOR   INSTITUTIONS 

foods  common  to  dietaries  A,  B,  and  C,  common  to  A 
and  B,  common  to  A  and  C  (rare),  and  common  to  B 
and  C. 

If  ordering  is  for  the  day,  rather  than  for  the  meal, 
the  form  would  be  the  same  as  that  shown,  but  with  a 
larger  content. 

If,  on  the  other  hand,  prices  are  constant,  because  sup- 
plies have  been  bought  in  advance,  the  labor  of  calculation 
may  be  much  simplified  by  combining  many  meals  in  one 
calculation;  e.  g.,  all  the  items  on  the  form  shown  as  a 
sample  below  are  likely  to  have  been  bought  early  in  the 
season  or  by  contract,  and  therefore  calculation  need  not 
be  made  oftener  than  the  figures  are  needed  or  the  price 
changes.  Meats,  on  the  other  hand,  may  need  calculation 
for  each  purchase. 

Indeed,  if  this  form  is  made  on  a  large  sheet,  with  ample 
spaces  vertically  to  add  daily  figures  of  quantities  consumed 
in  each  combination  of  dietaries  (so  that  to  the  20  lbs.  of 
squash  used  to-day,  e.  g.,  15  lbs.  may  be  added  day  after 
to-morrow,  etc.)  one  sheet  may  serve  for  a  week  or  longer. 
The  objection  to  this  method  is  the  awkwardness  of  the 
sheet  and  the  difficulty  of  making  corrections  in  case  of 
error — for,  since  the  items  cannot  well  be  labeled,  identifica- 
tion is  well-nigh  impossible.  That  is  why  a  separate  sheet 
for  each  meal  or  day  is  recommended  here. 

Forms    i6w  and    16 — Summaries   of   Occasional    Common 
Food  Costs,  Weekly  and  Monthly 

These  summarize  the  information  given  for  each  meal 
on  form  15,  but  add  from  form  12  the  total  number  of 
meals,  for  the  month,  served  in  each  group  of  dietaries. 
Dividing  the  total  cost  by  the  number  of  meals  gives  the 
average  cost  per  meal  for  these  particular  items ;  and  multi- 


FORMS  FOR  THE  DETERMINATION  OF  COSTS 


151 


FORM  i6w  Month  of  January,  IQ12 

Week  of  1-7 
Weekly  Summary  of  Occasional  Common  Food  Costs 


Day  Meal 

Cost  of  Food  for  Dietaries  Served  in 
Common 

Total 

A+B+C 

A+B 

A+C 

B+C 

1  Breakfast 
Dinner 
Supper 

2  Breakfast 
Dinner 
Supper 

3  Breakfast 
Dinner 
Supper 

4  Breakfast 
Dinner 
Supper 

5  Breakfast 
Dinner 
Supper 

6  Breakfast 
Dinner 
Supper 

7  Breakfast 
Dinner 
Supper 

456 
1.50 

3  50 

■85 

2.15 
1.88 

Totals 

Meals  served 
(Form  I2w) 

Average  per  meal 

I 

Average  per  day 

" 

153 


COST  ACCOUNTING  FOR   INSTITUTIONS 


FORM  i6  Month  of  January,  1912 

Monthly  Summary  of  Occasional  Common  Food  Costs 


Day  Meal 

Cost  of  Food  for  Dietaries  Served  in 
Common 

Total 

A+B+C 

A+B 

A+C 

B+C 

29  Breakfast 
Dinner 
Supper 

30  Breakfast 
Dinner 
Supper 

31  Breakfast 
Dinner 
Supper 

I-  7 

8-14 
15-21 
22-28 

Totals 

57S-30 

i8g . 70 

61.15 

177-51 

1,003.66 

Meals  served  (Form  12) 

16,659 

14,208 

5,274 

13,836 

Average  per  meal 

■034 

.013 

.012 

.013 

Average  per  day 

.102 

■039 

.036 

■039 

plying  this  quotient  by  three  gives  the  average  cost  per 
day  for  these  particular  items. 

These  forms  are  designed  to  follow  the  plan  of  a  record 
and  calculation  of  food  cost  for  each  meal.  Where  record 
and  calculation  are  made  only  daily,  these  two  forms  would 
be  combined,  and  form  16  would  have  thirty-one  lines — one 
for  each  day.  If,  on  the  other  hand,  form  15  were  arranged 
for  a  week's  calculation,  form  16  would  have  but  four  or 
five  lines.     If,  finally,  form  15  could  be  made  to  cover  a 


FORMS   FOR  THE  DETERMINATION    OF  COSTS     153 

month  (possible  when  the  dietaries  are  few  and  combina- 
tions infrequent)  form  15  would  itself  serve  the  purpose  of 
form  16  by  the  mere  addition  of  the  figures  for  meals 
served  and  for  averages. 

Wherever  averages  are  shown,  as  here,  the  figures  from 
which  they  are  derived  should  be  shown — as  a  check  on 
error  in  calculation  or  copying.  So  the  number  of  meals 
served  should  be  entered  here  from  form  12,  indicating  that 
.034  is  the  decimal  expression  of  the  fraction  575-16659. 

Form  17 — Calculation  of  Regular  Common  Food  Costs 

A  common  type  of  food  is  that  which  is  served,  either 
directly  or  indirectly,  for  all  meals  and  for  all  types  of 
dietary — such  as  flour,  sugar,  butter,  spices,  milk,  etc.  If 
a  proper  stores  record  is  kept  of  the  amount  on  hand  at  the 
beginning  of  the  month,  the  amount  bought,  and  the  amount 
on  hand  at  the  end  of  the  month,  the  amount  consumed 
can  be  easily  determined,  and  this  multiplied  by  the  cost  per 
unit  gives  the  total  cost  for  the  month.  If  we  divide  this 
cost  by  the  total  number  of  meals  served,  indicated  by  form 
12,  we  shall  get  the  cost  per  meal;  this  multiplied  by  three 
gives  the  daily  cost.  This  requires  calculation  but  once  a 
month. 

Care  should  be  taken,  of  course,  to  provide  against 
confusion  between  open  stock  in  the  kitchens  and  store-room 
stock.  If  all  food  supplies  go  to  the  kitchens  and  are  sent 
on  requisition  only,  the  store-room  may  be  treated  as  an 
outside  store.  If,  on  the  other  hand,  the  store-room  issues 
food  to  diet  kitchens,  dining-rooms,  etc.,  direct,  or  without 
requisitions,  either  inventories  of  the  store-room  must  be 
taken  for  each  calculation  of  regular  common  foods,  or 
requisitions  from  diet  kitchens,  dining-rooms,  etc.,  must  be 
carried  through  the  cost  calculations.  In  any  case,  store- 
room stock  should  be  frequently  checked  with  the  purcha^, 


154  COST   ACCOUNTING   FOR   INSTITUTIONS 

FORM  17  Month  of  January,  igis 

Calculation  of  Regular  Common  Food  Costs 

(Incomplete  Sample) 


On  Hand 
Begin- 
ning 

Bought 

On 
Hand 
End 

Con- 
sumed 

Rate 

Cost 

Groceries 
Flour 
Sugar 
etc. 

Butter 
Eggs 

etc. 

etc. 

600 
1,000 

300 

100 
300 

800 
700 

■03 
■05 

24-00 

35-00 
459-58 

Total 

518.58 

Number  of  meals  (Form  12)    17,579 
Cost  per  meal  .  02gs 

Cost  per  day  .09 

the  requisitions,  and  the  inventories.  This  last  requirement 
is  mere  business  sense,  and  its  cost  is  not  a  cost  of  account- 
ing— though  the  accountant  uses  the  figures. 


Form  18 — Summary  of  Average  Food  Costs 

The  immediately  preceding  forms  have  given  the  cost 
per  day  for  each  type  of  dietary  as  follows :  special  foods, 
form  14;  occasional  common  foods,  form  16;  and  those 
common  to  all  meals,  form  17;  if  we  now  add  together 
the  costs,  for  each  type  of  dietary,  for  each  one  of  these 
types  of  food,  we  get  the  total  daily  cost  for  each  dietary. 
The  daily  cost  for  patients  in  private  rooms  is  the  cost  of 


FORMS    FOR   THE   DETERMINATION    OF   COSTS     155 

dietary  A  for  the  special  foods,  plus  those  occasional  com- 
mon costs  which  concern  dietary  A,  plus  the  regular  common 
cost.  Patients  in  wards  take  dietary  B  for  the  si^ecial  foods, 
and  share  in  the  other  two  classes  of  costs.  Patients  on 
fever  diet  are  served  class  D  special  food,  but  do  not  usually 
share  in  the  occasional  common  diet,  though  they  may 
share  in  the  regular  common  diet.  Group  A  of  the  house- 
hold is  served  diet  A  of  the  special  foods  and  shares  in 
the  other  two.  Group  B  of  the  household  is  served  class 
B  of  the  special  diet  and  shares  in  the  other  two.  Group 
C  of  the  household  is  served  class  C  of  the  special  food 
and  shares  in  the  other  two.  This  form  gathers  the  various 
elements  of  final  food  cost  for  each  dietary  and  shows  its 
final  figure. 

The  lower  half  of  this  form  gives  us  the  statistical 
figures  for  the  total  cost  of  food,  the  total  cost  of  patient 
food,  and  the  division  of  the  total  cost  of  patient  food  be- 
tween wards  and  private  rooms.  These  figures  are  ob- 
tained as  follows :  the  total  cost  of  food  is  taken  from  form 
14  (which  gives  the  four  types  of  special  food),  form  16 
(which  gives  the  occasional  food),  form  17  (which  gives 
the  regular  food),  and  form  12  (which  gives  the  total 
number  of  persons  for  whom  board  was  provided).  A 
division  of  the  total  cost  by  the  number  of  persons  gives 
the  average  cost  of  all  food  per  capita  day. 

The  cost  of  patient  food  is  determined  from  the  number 
of  persons  in  each  group  of  patients  (form  12),  and  the 
total  daily  cost  for  that  group  as  shown  by  the  upper  half 
of  this  form  18.  The  products  of  these  figures  give  the 
cost  of  patient  food  for  each  class  of  patient,  and  the  sum 
of  the  products  gives  the  total  cost  of  patient  food.  When 
this  is  divided  by  the  total  number  of  patients,  as  indicated 
in  the  form  (also  obtained  from  form  12),  the  quotient  is 
the  average  cost  of  patient  food  per  patient-day. 


156  COST  ACCOUNTING   FOR   INSTITUTIONS 


O 

J3 


PQ 


O 

PQ 


i2  to- „> 

<u  g  C 
cs  «;  i^ 


'O  "O  "O 


househo 
househo 
househo 

» 

1? 

<fm"cj 

f2 

s  3  3 
000 

C/2 


000 


o.s 


V 


•o 


■Sw    W    fe 


2-S 

0)  o 


>0  O  ^  (^  "100 


■*  ■^  •*  ■*  "  ^^ 
p  o  o  o  ofe  F 

U'o'o'S'o  rt  2, 
^  oj  0)  oj  oj  u  00 

a)  a  ft  a  a  "  «j 
H 


goj 


■3    "nf"  " 

o       "  "  "" 


FORMS   FOR  THE  DETERMINATION    OF   COSTS     157 

If  we  multiply  the  number  of  patients  in  wards  and 
the  number  in  private  rooms,  as  shown  by  form  4,  by  the 
cost  for  each  type  of  dietary  served,  and  divide  for  wards 
and  for  private  rooms  by  the  total  number  of  patients  in 
each,  we  shall  get  the  average  cost  of  patient  food  for 
wards  and  the  average  cost  of  patient  food  for  private 
rooms.    This  is  worked  out  on  page  156. 

Form  1 9 — House  Tables  Record 

This  form  is  designed  to  supplement  form  7,  when  the 
number  of  employees  is  large,  and  thus  provide  the  means 
of  final  distribution  of  board  costs  among  employees  serv- 
ing the  various  departments.  As  shown  in  the  form,  all 
employees  whose  board  is  chargeable  to  the  same  account 
are  considered  for  the  purpose  of  this  schedule  as  constitut- 
ing a  group,  and  since  the  classification  follows  almost  ex- 
actly the  natural  classification  of  the  time  sheet  and  the 
payroll,  the  first  figures  are  at  hand.  The  employees'  time 
is  further  grouped  so  that  we  may  have  a  final  figure  for 
those  who  have  dietary  A,  for  those  who  have  dietary  B, 
and  for  those  who  have  dietary  C.  Each  department  em- 
ploying any  of  those  whose  time  is  included  in  group  A 
is  of  course  to  be  charged  with  their  board  at  the  group  A 
cost — which  has  already  been  shown  on  form  18.  Each 
department  employing  any  of  those  whose  time  is  included 
in  group  B  is  to  be  charged  at  the  group  B  rate.  The 
same  thing  is  true  of  group  C.  The  totals  are  taken,  for 
test  purposes,  in  order  to  see  whether  they  agree,  as  they 
should,  with  the  figures  on  form  12.  The  application  of 
the  rate  to  the  time  here  shown  is  made  on  form  20. 

When  groups  of  employees  and  of  dietary  are  few,  form 
7,  as  shown,  will  in  its  group  totals  provide  all  necessary 
information ;  but  when  complications  exist,  or  when  the 
importance  of  proving  figures  is  great,  a  summary  like 


158 


COST  ACCOUNTING   FOR   INSTITUTIONS 


I 


E      « 


1 

1 

t»5  N   N   N 

c2 

• 

i 

■<* 

tc 

N 

«    j--^^ 

ts. 

4J 

c 

<!  •<  (1,  (X,  Ph  Ph 

QQQPW 

8 

1 

bo 

■.S-2 

^a  CO 

rt  <A  CO -O 

w.  n  '"  ^ 

-S  o  -  ^i  .    . 

•2    «   «   C   IJ   <U 

t3 

a 
S 

f2 

'O        c  "^  to  CO 

+->    to  •— !  >— 1 

=^  „^  'S  3  ^>i 
V5  4)  c  a  h  u 
•^  §.2.2  ^  g  ^  ^ 

to 

>^ 

§ 

3 

o 

§  g  «^  6  e 
to  §2  ^  o 

ca 
•a 

O 

s 

S. 

1 

txo 

e2 

FORMS    FOR   THE   DETERMINATION    OF   COSTS    159 

form  19  is  valuable.  If  desired,  it  can  be  reduced  to  the 
monthly  figures  only,  taken  from  form  7.  In  that  case,  it 
is  not  easily  susceptible  of  proof. 

Form  20 — Distribution  of  Food  Costs 

This  sheet  gives  the  final  distribution  of  food  costs  based 
on  forms  4,  18,  and  19.  From  form  4  is  learned  the  number 
of  persons  whose  board  is  chargeable  to  the  various  patient 
groups;  from  form  19  is  learned  the  number  of  employees 
whose  board  is  chargeable  to  the  various  groups  of  em- 
ployees for  various  departments;  and  from  form  18  is 
learned  the  cost  of  food  for  each  type  of  dietary.  The 
amounts  for  each  board  account  are  shown  here,  and  totals 
of  various  ultimate  groups,  such  as  ward  patients,  private- 
room  patients,  administrative  officers,  and  general  em- 
ployees, etc.,  are  shown.  Finally,  the  percentage  for  each 
account  is  shown.  This  is  interesting,  because  in  a  com- 
parison of  two  institutions  it  is  necessary  to  know  whether 
service  forms  a  larger  part  of  the  element  of  cost  in  one 
than  in  the  other ;  obviously  an  institution  having  three  em- 
ployees for  every  guest  or  inmate  will  show  a  cost  very 
different  from  that  of  an  institution  having  one  employee 
for  every  three  guests  or  inmates.  It  is  important,  more- 
over, for  it  furnishes  the  basis  for  the  distribution  of  the 
cost  of  preparing  food — and  in  the  long  run  the  cost  of 
preparation  is  found  to  follow  approximately  the  cost  of 
raw  material.  Indeed,  the  final  distribution  of  all  costs 
connected  with  food  is  made  on  this  percentage. 


i6o 


COST  ACCOUNTING   FOR   INSTITUTIONS 


FORM  20 


Month  of  January,  igi2 
Distribution  of  Food  Costs 


Service 


Number 
of  Days 
(Form  4) 


Daily 

Rate 

(F'mi8) 


Account 
Symbol 


Amount 


Account 
Total 


Per 
Cent 


Ward  Patients 
House  diet 
Fever  diet 

Private  Room  Patients 
Special  diet 
House  diet 
Fever  diet 


Administrative  Officers 

Employees 
Telephone  Employees 
Professional  Service,  A 
B 
B 
A 
Emergency  Ward 
etc. 
etc. 
Department  Service 
Training  school 
Steward's 
Kitchen 
Household 
Laundry 
Boiler  room 
etc. 
etc. 


2,68c^ 
261^ 


606 
94 
45 


3,687' 


(Form  19) 
120 

75 

30 

152 

171^ 

743^ 

43 


20 


309 
152^ 

155' 


2,172^ 


'37 
.18 


■45 
■37 
.18 


■45 
■37 
■37 
■45 
■37 
■37 
■45 


■45 
■30 
■30 
■30 
■30 
■30 


RBW 
RBW 


RBP 
RBP 
RBP 


ASb 

ASb 

ATb 

PSbw 

PSbp 

PSbz 

PSbz 


DTb 
DSb 
DKb 
DHb 
DLb 
HSb 


991.84 
47-10 


272 . 70 

34.78 

8.10 


54 -oo 
27 -75 


275-16 
19-35 


1,038.94 


315-58 


81-75 
II  .10 
68.40 
63-52 

294-51 


9.00 
26.90 
92.70 
45-70 
46.70 
33-10 


148 


039 
005 
032 
03 

138 


004 
013 
044 
021 
022 
016 


5,859^ 


2,127.90* 


•  The  slight  discrepancy  between  this  figure  and  that  of  form  18  is  due  to  the  neglect  of 
small  fractions  in  both  cases.     Final  adjustments  will  take  up  this  difference. 


FORMS   FOR  THE  DETERMINATION    OF  COSTS     i6l 

Form  21 — Engineer's  Daily  Time  Card 

Form  21  is  necessary  only  when  some  of  the  employees, 
such  as  those  in  the  boiler-room,  are  doing  various  kinds 
of  work  chargeable  to  various  departments.  If  this  form  is 
printed  on  coordinate  paper,  so  that  very  small  spaces  are 


FORM  21 


Day  January  lo,  igis 
Engineer's  DAav  Time  Card 


1 

0  c 
II 

St 

t3  m 

la 

ffiac 

0 

S 

E 
2 

73i 

OS 

"o  M 

as 

«0, 

M  0 

Kg 
V  a 

Account 

HSs 

HL 

DSmvf 

DHs 

PSo 

HE 

DSs 

PMs 

HMB 

HMO 

HMP 

B 

7.00 
15 
30 

45 
8.00 

15 

30 

45 

etc. 

etc. 

etc. 

etc. 

1. 00 

115 

1.30 

1-45 

2.00 

215 

etc. 
etc. 

4 

/ 

/ 

Vs 

Va 

/ 

/ 

l62  COST  ACCOUNTING  FOR   INSTITUTIONS 

shown,  it  is  likely  to  be  much  more  serviceable  than  on  or- 
dinary paper.  Down  the  left  of  the  pages  are  shown  the 
various  hours  of  the  day,  at  fifteen-minute  intervals.  The 
employee  indicates  by  pencil  marks  the  hours  at  which  he  be- 
gins or  quits  any  particular  type  of  work — at  least  each 
type  of  work  chargeable  to  any  account  differing  from  the 
account  for  the  work  preceding  or  following.  The  columns 
of  this  form  indicate  the  commoner  types  of  work  likely  to 
be  performed  by  such  an  employee.  They  also  give  the 
symbols — for  convenience  of  notation.  By  a  comparison 
of  time  shown  here  with  actual  time  of  employment,  one 
can  learn  of  any  uncharged  time  and  distribute  it  propor- 
tionately among  the  accounts  concerned.  At  the  foot  of 
the  form  is  given  the  total  number  of  hours  in  the  day 
chargeable  to  the  various  accounts  named  at  the  head  of 
the  form.  If  the  employee  is  fully  occupied,  of  course,  a 
line  should  begin  in  some  column  directly  opposite  the  end 
of  a  line  in  some  other  column. 

Form  22 — Engineer's  Monthly  Summary 

This  gives  in  summary  for  the  month  the  number  of 
hours'  work  done  by  the  employees  whose  time  is  kept  on 
form  21.  The  extensions  show  the  total  chargeable  to  each 
account.  If  the  employee  is  boarded  on  the  premises,  it  is 
obvious  that  his  board  should  be  distributed  among  these 
accounts  on  the  basis  of  the  number  of  hours  of  employ- 
ment for  each.  For  this  purpose  a  column  is  provided  for 
the  percentage  of  time  (or  direct  wages)  assignable  to  each 
department.  If  the  employee  does  not  live  on  the  premises, 
this  column  is  not  needed. 


FORMS   FOR  THE  DETERMINATION    OF  COSTS    163 


>< 

■< 

> 

Ei: 

H 

o 


Id 

3 

z 


« 

§ 

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0                  in    tsa                _^           M  .2 

M       c  (u  .5            c       "o  ^ 
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000    0    0  .t  .2    0  .h    0  .h  -^    rt 

c3  c3  c3  c3  c3  tS  (2  c3  (2  c3  ^  :^ 

§ 

0 

l64  COST  ACCOUNTING  FOR  INSTITUTIONS 

Form  23 — Space-Cost  Basis 

This  form  furnishes  the  basis  for  the  distribution  of 
space  costs — that  is,  the  cost  of  light,  heat,  cleaning,  insur- 
ance on  buildings,  taxes  on  buildings  and  land,  etc.  It  usu- 
ally may  be  made  up  from  the  architect's  plans,  but  an 
exact  calculation  of  space  is  seldom  necessary.  In  the  illus- 
tration given,  rough  rectangular  dimensions  were  taken, 
and  then  allowances  were  made  (as  shown  by  the  column 
with  the  heading  "out")  for  jogs,  light  wells,  etc.,  cut  out 
from  the  rectangular  space.  The  figures  of  net  floor  space 
are  kept  as  a  means  of  finding  average  cleaning  costs,  etc. 
The  benefit  of  the  basement,  halls,  stairways,  etc.,  is  sup- 
posed to  be  shared  proportionately  by  all  departments,  and 
hence  is  undistributed.  Entire  neglect  of  it  in  the  distribu- 
tion raises  each  department's  proportional  share  properly. 
The  amounts  in  the  column  headed  "undistributed"  are 
therefore  subtracted  from  the  net  floor  space,  as  indicated 
on  the  form.  When  this  undistributed  amount  has  been 
subtracted  from  the  net  floor  space,  the  remainder  is  the 
figure  on  which  all  items  of  distribution  for  floor  area  must 
be  apportioned  to  the  various  departments.  This  figure 
multiplied  by  the  height  gives  for  each  floor  the  cubic 
space  which  is  to  be  used  in  distribution;  and  the  net  cubic 
space  is  found  by  multiplying  the  net  floor  space  by  the 
height,  for  statistical  uses  in  determining  the  average  cost 
per  cubic  foot  for  heating,  etc.  This  form,  it  will  be  ob- 
served, divides  the  buildings  in  floors,  on  the  assumption 
that  all  rooms  on  the  same  floor  are  chargeable  at  the  same 
rate  for  their  space  cost.  Under  some  conditions  this  would 
be  varied,  for  different  rooms  on  the  same  floor  might  be 
chargeable  at  different  rates,  and  rooms  on  different  floors 
might  be  chargeable  at  the  same  rate.  The  aim  of  this 
form  is  to  find  the  bases,  whatever  they  are,  for  use  in 
form  24.    When  once  calculated,  they  are  permanent. 


FORMS   FOR   THE   DETERMINATION    OF   COSTS 


165 


< 


o 
u 

u 
u 

< 


Cubic 
Space  to 
Appor- 
tion 

00  »  0  •*  »^ 

•%  vO  »0  W  0> 

\n  0    S  d^  ri' 

«0  «0  »0  N  N 

ID 

Net 
Cubic 
Space 

^  00  vO  "I-  0 
10  «-  00  \0  fO 

'-''  vO"  fO  re  ro 

"t  fT)  tn  ■^  tT) 

00 

to                        

t  Floor 
Space 
to  Ap- 
portion 

2,693 
2,693 
.     2,972 
2,309 
2,309 

P<  N  00  vO  vO 
ID  10  0  M  N 
■<1-  't  «  «  « 

Net 
Floor 
Space 

10  i«  0  in  ID 

'I-  ■>*•  00  «0  fT) 

-  «  0  Tf  .^ 
»^  fO  'f  fO  ro 

0 

1 

ID  10 

*1. 

Gross 
Floor 
Space 

10  ID  0  0  0 

^  ^  00  00  00 

►-  -1  0  0  0 

fO  fO  •<?  "tf  "f 

ID 

00' 

c 

S 

Q  § 

PQ 

„  c   eu 
«  2   -t- 

8 

"-     n  —  Pt  ro 

2 
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n 

Ward 
Administrative 

"a 


u-3 
2  •- 


60     4, 


SCO 

•-  S  •3 


l66  COST  ACCOUNTING   FOR   INSTITUTIONS 

Form  24 — Space  Cost  Distribution 

This  form  makes  the  calculation,  for  each  department  in 
the  institution,  based  on  the  figures  shown  in  form  23.  If 
several  rooms  form  a  group  serving  the  same  purpose,  it 
is  unnecessary  to  distribute  costs  to  each  room.  For  this 
reason  columns  are  provided  for  "separate  floor  space"  and 
"combined  floor  space";  by  the  use  of  the  combined  floor 
space,  one  distribution  serves  the  total  for  any  group  of 
rooms  of  which  the  space  cost  is  chargeable  to  the  same 
account.  The  space  of  a  room  treated  by  itself  is  extended 
in  the  same  column  as  the  combined  space  for  groups.  The 
floor  space  is  multiplied  by  the  height,  as  in  the  preceding 
form,  and  the  result  gives  the  combined  cubic  space.  These 
figures  compared  with  the  first-found  spaces,  as  shown  on 
form  2^,  give  the  percentage  of  floor  space  and  of  cubic 
space  chargeable  to  each  room  or  group  of  rooms.  The  last 
column  gives  the  symbol  of  the  account  to  which  charges 
are  to  be  made  for  these  rooming  or  housing  costs.  Where 
a  group  of  rooms  is  used  in  common  by  two  or  more  groups 
of  persons,  as  here  the  lavatory,  the  bath-room,  the  linen 
closet,  the  clothing  room,  and  the  solarium,  the  division  of 
cost  may  be  on  the  basis  of  beds.  Here,  for  instance,  a 
person  occupying  a  large  and  expensive  private  room  is 
chargeable  for  no  larger  share  of  cost  of  maintaining  the 
clothing  room  or  solarium  than  one  occupying  a  bed  in 
the  lowest-cost  ward.  This  principle  is  again  illustrated  in 
the  case  of  the  dining-room,  which  is  used  in  common  by 
the  employees  of  the  housekeeping  department,  the  kitchen 
department,  and  the  laundry  department.  Its  cost  is  conse- 
quently divided  among  those  three  departments  on  the 
basis  of  the  number  of  persons  boarded  for  each. 

Since  several  accounts  have  more  than  one  item  here,  as 
RHP,  RHW,  and  DKh,  a  list  is  made,  and  filed  with  this 
form  24,  for  the  total  percentage  chargeable  to  each  ac- 


FORMS    FOR   THE   DETERMINATION    OF   COSTS 


167 


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COST  ACCOUNTING  FOR  INSTITUTIONS 


count.  When  arranged  in  the  order  in  which  accounts  are 
kept  in  the  ledger,  this  list  may  be  conveniently  used  for 
making  the  entries. 

Form  25 — Monthly  Record  of  Ice 

Very  commonly  it  is  unnecessary  to  provide  any  special 
treatment  for  ice ;  but  if  it  chances  that  there  is  a  large  con- 
sumption of  ice  in  certain  wards  of  a  hospital  and  at  the 
same  time  in  the  steward's  department,  accurate  distribu- 
tion of  the  cost  requires  that  notes  shall  be  made  of  these 
facts.  If  ice  is  charged  immediately  to  one  account,  HO, 
and  is  then  distributed  to  the  wards  for  medical  purposes, 


FORM  25 


Month  of  January,  tgi2 
Monthly  Record  of  Ice 


Medical  Purposes 

Days 

Total 

I 

2 

3 

4 

5 

6 

etc.,  etc. 

Ward  I 

2 

3 

15 
20 

Total 

35 

90 
25 

Steward's  Dept. 
Household 

Grand  total  * 

150 

Medical  and  surgical  supplies  (PMo)  lbs.  at        = 

Steward's  department  (DSo)  lbs.  at        = 

♦  This  should  agree  with  the  charge  to  HO.  The  amount  chargeable  to  the  household 
is  not  carried  below  here,  for  as  all  ice  is  charged  to  HO,  credit  should  be  given  HO  for 
the  amount  chargeable  to  PMo  and  DSo,  and  the  balance  of  HO  will  then  be  a  generkl 
bouae  charge. 


FORMS   FOR  THE  DETERMINATION    OF   COSTS     169 

to  the  steward's  department,  to  the  kitchen  department,  and 
to  the  housekeeping  department  for  ice  water,  etc.,  a  rec- 
ord should  be  made  of  the  amount  taken  by  each  depart- 
ment each  day.  This  form  provides  for  a  monthly  distri- 
bution of  ice  costs.  Ice  not  absorbed  by  medical  and  food 
uses  should  be  considered  a  general  house  charge,  like  wa- 
ter, gas,  etc. 


CHAPTER  VII 

CLOSING  PROCESSES 

Charges  for  Ice 

On  the  information  given  by  the  Monthly  Report  of  Ice 
(form  25),  PMo  and  DSo  are  to  be  debited  and  HO  is  to 
be  credited.  If  there  is  no  general  consumption  of  ice,  as 
in  drinking  fountains  for  visitors  and  for  employees,  HO 
should  have  no  balance,  (See  closing  entry  No.  i,  page 
187.) 

Depreciation  Charges 

The  purpose  of  depreciation  accounts  is  to  prevent  un- 
fair distribution  of  costs  betv^^een  periods — months,  or  years, 
or  superintendent's  regimes.  Only  when  depreciation  is 
considered  can  comparisons  be  made  either  within  an  insti- 
tution or  between  institutions.  The  basis  of  the  allowance 
for  depreciation  should  be  always  the  use  of  the  property.. 
Supposed  market  price  has  nothing  to  do  with  the  cost  of 
the  institution's  activities.  If,  for  example,  land  has  risen 
in  value,  that  increase  in  value  cannot  offset  depreciation 
in  the  value  of  buildings  that  must  be  sooner  or  later  re- 
placed unless  the  institution  is  to  move  or  sell  part  of  its 
land.  Even  if  the  land  is  to  be  sold,  the  change  in  the 
value  of  buildings  and  land  should  be  reported  separately; 
for  the  depreciation  of  the  buildings  has  arisen  from  the 
exhaustion  of  capital  in  conducting  the  work  of  the  institu- 
tion, but  the  change  in  land  value  has  arisen  from  causes 
outside  its  control.  Since,  moreover,  the  new  value  of  the 
land  is  not  of  any  use  to  the  institution  until  the  land  is 

170 


CLOSING   PROCESSES  171 

sold,  the  original  cost  valuation  should  remain  until  the  sale 
has  been  actually  made. 

If  maintenance  has  presumably  kept  the  value  of  any 
equipment  intact,  as  in  most  institutions  it  generally  can 
for  most  departments,  no  depreciation  need  be  charged  in 
those  departments;  but  unless  extensive  repairs  or  better- 
ments are  made  frequently  in  buildings,  the  building  ac- 
count should  be  steadily  written  down.  The  same  thing  is 
true  of  the  boiler-room  equipment.  Care  should  be  taken 
to  see  that  the  book  valuation  of  surgical  apparatus,  etc., 
is  not  continued  too  high,  thus  necessitating  a  heavy  charge 
in  the  period  when  replacements  become  necessary.  The 
cost  of  all  extensive  replacements  should  be  spread  over 
as  many  periods  as  the  life  of  the  apparatus  replaced.  This 
does  not  mean,  however,  that  each  particular  bit  of  replace- 
ment must  be  treated  by  itself,  but  only  that  for  any  de- 
partment as  a  whole  the  sum  of  repairs  and  replacements 
and  depreciation  should  be  a  practically  steady  charge 
month  after  month  and  year  after  year — except  so  far  as 
an  increase  or  decrease  in  the  activity  of  the  department, 
and  hence  the  use  of  property  to  be  maintained,  may  result 
in  an  actual  increase  or  decrease  in  the  cost  of  maintenance. 
When,  therefore,  in  any  period  the  expense  of  repairs  and 
renewals  or  replacements  in  any  department  as  a  whole  is 
less  than  a  fair  average  for  a  long  period  of  years,  deprecia- 
tion, and  therefore  current  expenses,  should  be  charged  for 
the  difference ;  and  when  new  equipment  more  than  restores 
the  equipment  of  the  department,  the  excess  may  be  charged 
to  the  capital  account  of  the  department.* 

Since  in  institutions  the  cost  accounting  is  less  for  the 
purpose  of  guidance  in  making  prices  than  it  is  in  factories 
working  under  fierce  competition,  elaborate  formul.ne  for 
apportioning  depreciation  are  not  necessary;  and  even  with 

•  Since  most  institutions  live  from  hand  to  mouth,  it  is  not  usually  feasible 
to  accumulate  a   fund   for  replacements. 


172  COST  ACCOUNTING   FOR   INSTITUTIONS 

such  a  formula,  unless  one  could  be  sure  that  it  were  ap- 
plied similarly  in  all  institutions,  comparison  of  figures 
would  be  misleading.  It  is  wise,  therefore,  to  consider  the 
normal  annual  depreciation  of  any  equipment  to  be  its  cost 
divided  by  the  estimated  number  of  years  of  life.  If  repairs 
and  replacements  keep  up  the  estimated  future  life  of  the 
whole  equipment  of  a  department  at  the  original  figure,  no 
depreciation  need  be  charged;  if  they  do  not,  the  periodic 
charge  to  depreciation  should  be  enough  to  amount,  at  the 
time  of  expected  replacement,  to  the  cost  of  such  replace- 
ment. If,  for  example,  one-fifth  of  the  equipment  is  re- 
placed every  year  in  a  department  having  equipment  of  an 
average  life  of  five  years,  maintenance  has  kept  the  property 
intact  and  no  depreciation  need  be  charged. 

The  following  depreciation  accounts  may  need  to  be 
debited,  and  the  corresponding  capital  accounts  credited : 
AOx,  ATx,  PMx,  PDx,  PEx,  PXx,  DMx,  DTx,  DSx. 
DKx,  DHxd,  DHxt,  DHxz,  DLx,  HXB,  HXO.  (See 
closing  entry  No.  2.) 

Temporary  Depreciation  Accounts 

When  the  expenditures  for  maintenance  are  fairly  even 
year  by  year,  but  are  unevenly  divided  among  the  months, 
and  it  is  desired  to  get  monthly  figures,  the  device  of  an 
account  called  Temporary  Depreciation  may  save  a  good 
deal  of  labor.  This  should  be  credited,  as  a  temporary  lia- 
bility, for  the  depreciation  in  each  department;  and  then, 
when  purchases  make  good  such  depreciation,  Temporary 
Depreciation  should  be  debited.  When  the  accounts  are 
closed  at  the  end  of  the  year,  if  in  any  department  the  prop- 
erty has  been  allowed  to  run  down  during  the  year  as  a 
whole,  so  that  Temporary  Depreciation  has  a  credit  bal- 
ance (a  liability),  this  account  should  be  closed  into  the 
proper  capital   account — showing   an   actual   reduction   in 


CLOSING   PROCESSES  173 

property  on  the  balance  sheet  and  on  the  statement  of  finan- 
cial transactions  for  the  year.  This  Temporary  Deprecia- 
tion can  be  kept  very  easily  by  the  use  of  the  subordinate 
ledger  already  described — with  Temporary  Depreciation  as 
a  general-ledger  account,  and  the  various  department  tem- 
porary depreciation  accounts  as  subordinate-ledger  ac- 
counts. The  natural  symbol  would  Ibe  TX,  with  lower-case- 
letter  additions,  to  designate  subdivisions,  corresponding 
with  the  capital-letter  symbols  of  equipment  accounts — thus 
TXa,  for  temporary  depreciation  of  administrative  equip- 
ment, TXi,  for  apparatus,  etc. 

Under  such  a  plan,  for  regular  estimated  monthly  wear 
and  tear,  whether  any  repairs  and  replacements  have  been 
made  or  not,  the  bookkeeper  should  debit  the  depreciation 
account  of  the  department  (as  PMx)  and  credit  Temporary 
Depreciation  (as  TXi).  When  repairs  and  replacements 
are  made,  on  the  other  hand,  he  should  debit  Temporary 
Depreciation  (as  TXi)  and  credit  cash.  Then  when  the 
annual  closing  is  made.  Temporary  Depreciation  (as  TXi) 
will  show  a  debit  balance  if  the  expenditures  for  the  year 
more  than  offset  the  estimated  depreciation  for  the  year, 
and  such  debit  balance  should  be  charged  to  the  equipment 
account  (as  I),  increasing  the  figure  on  the  balance  sheet. 
If  the  debits  do  not  equal  the  credits,  the  credit  balance 
should  be  transferred  to  the  equipment  account  (as  I),  thus 
reducing  the  book  asset. 

Obviously,  on  any  subdivision  in  this  account,  so  much 
of  the  original  debit  (made  before  the  closing  entries)  as 
does  not  exceed  the  credit  shows  actual  maintenance.  So 
much  of  such  debit  should  then  be  charged  to  the  main- 
tenance account  for  the  department  (as  PMa,  DHmd, 
DMm),  and  should  be  credited  to  the  depreciation  account 
for  the  department  (as  PMx,  DHxd,  DMx)  ;  for  to  this 
amount  the  cost  is  now  known  to  be  for  maintenance  and 


174  COST  ACCOUNTING  FOR   INSTITUTIONS 

not  for  depreciation  as  first  recorded.  All  accounts  relating 
to  these  matters  now  stand  as  they  should,  thus :  capital  ac- 
counts debited  for  increases  and  credited  for  depreciation; 
maintenance  accounts  debited  for  actual  expenditures  for 
repairs  and  replacements,  but  not  for  improvements;  de- 
preciation accounts  debited  for  theoretical  depreciation  but 
credited  for  actual  maintenance ;  and  temporary  deprecia- 
tion closed  without  balance.     (See  page  234.) 

In  no  case  should  the  temporary  account  go  over  into  a 
new  year. 

The  only  special  caution  necessary  in  this  method  is  that 
the  estimate  of  wear  and  tear  be  sane.  If  too  low,  the  prop- 
erty will  be  actually  depreciated  in  spite  of  a  valuation  con- 
tinued on  the  books  at  the  old  figure,  or  will  be  written  up 
on  the  books  when  actually  stable  or  depreciated.  If  too 
high,  on  the  other  hand,  costs  will  be  overstated.  The 
method  should  be  based  on  adequate  experience,  or  should 
be  checked  frequently  by  careful  appraisals  of  the  property. 

Interest  Charges  ' 

Interest  should  be  charged  to  the  various  departments 
for  the  use  of  equipment  and  supplies.  The  amount  of  such 
interest  should  be  credited  to  the  corporation  in  a  special 
account,  ICIH,  Corporation  Hospital  Interest.  The  rate, 
however,  should  preferably  approach  a  pure  interest  rate,  or 
3  per  cent,  for  the  corporation  takes  no  risk  in  lending  to 
its  own  departments — it  gets  the  service.  Departments 
carrying  large  supplies  (the  steward's,  for  example)  should 
be  charged  interest  not  only  on  equipment,  but  on  average 
supplies  carried.  The  following  should  be  debited :  AOi, 
PMi,  PDi,  PEi,  PXi,  DMi,  DTi,  DSi,  DKi,  DHid,  DHit, 
DHiz,  DLi,  HIB,  HIO.  (See  closing  entry  No.  3.)  The 
permanent  equipment  for  the  Pathological  Laboratory  and 
for  the  Home  Nursing  Department  is  likely  to  be  so  small 


CLOSING   PROCESSES 


175 


that  interest  need  hardly  be  separately  reported  for  them : 
the  amount  of  interest  could  be  included  in  PMi.  Interest 
on  sites  and  grounds  is  not  taken  into  consideration;  for 
the  cost  of  land  is  largely  independent  of  working  condi- 
tions. If  interest  on  land  were  included  in  cost  figures, 
hospitals  in  the  crowded  sections  of  large  cities  (where  they 
need  to  do  their  work)  would  be  at  a  great  disaflvantage  as 
compared  with  hospitals  on  land  that  is  inexpensive.  The 
aim  of  our  cost  accounting  is  largely  to  provide  a  means  of 
judging  efficiency ;  but  artificial  influences  on  the  price  of 
land  actually  used  for  hospital  purposes  do  not  at  all  affect 
hospital  efficiency.  Service,  not  profit,  is  the  aim  of  hos- 
pital management. 

Rent  Charges 

Usually  rent  paid  for  the  use  of  land  and  buildings 
should  be  charged  directly  to  the  departments  using  the 
property  benefited — as  ambulance  department  charged  for 
stable  or  garage  rental.  This  would  not  affect  the  distribu- 
tion of  THS  or  THC,  for  only  so  far  as  these  departments 
use  space  owned  by  the  hospital  should  they  bear  a  share 
of  these  accounts.  The  total  housing  charge  to  the  depart- 
ments would  be  the  sum  of  these  two  items — one  a  direct 
rent  charge  and  the  other  a  charge  from  the  distribution  of 
transfer  space-cost  accounts.  So  far,  on  the  other  hand, 
as  property  hired  adjoins  property  owned,  mere  chance  is 
likely  to  determine  which  department  is  assigned  to  the 
rented  quarters  and  which  to  owned  (|uarters ;  then  the  rent 
may  well  be  charged  to  a  separate  account  HR,  may  be 
transferred  thence  to  THS  and  THC,  and  may  then  be 
distributed  on  the  usual  basis. 

Charges  for  Engineer's  Services 

From  the  Engineer's  Monthly  Summary  (form  22)  is 
learned  how  the  engineer's  time  is  divided  between  different 


176  COST  ACCOUNTING  FOR  INSTITUTIONS 

kinds  of  work.  These  various  kinds  of  work  are  to  be 
charged  not  only  for  his  wages,  but  also,  if  he  lives  on  the 
premises,  for  his  board,  his  lodging,  etc.  It  is  impossible 
to  get  an  absolutely  accurate  figure  for  each  step  of  the 
closing  process,  for  to  a  certain  small  extent  the  charges 
move  in  a  circle — e.  g.,  the  board  costs  depend  in  part  on 
housing  costs  (of  rooms  used  for  cooking,  etc.),  and  hous- 
ing costs  depend  in  part  on  the  compensation  of  the  engi- 
neer, and  a  part  of  his  compensation  is  often  board.  So  we 
cannot  learn  exact  final  board  until  we  have  learned  the 
engineer's  board,  and  we  cannot  learn  his  board  until  we 
learn  final  board.  This  difficulty  occurs  only  in  starting 
the  process,  however,  and  if  we  use  a  fairly  reasonable 
arbitrary  figure  for  a  few  initial  matters  of  this  sort,  we 
shall  get  a  result  that  errs  by  only  a  negligible  percentage 
on  a  very  small  item.  The  error  is  corrected  before  final 
costs  are  reached,  as  will  be  seen  later.  This  is  necessary, 
moreover,  only  for  the  first  month.  After  that,  the  figure 
of  the  preceding  month  would  naturally  be  taken  as  suffi- 
ciently correct,  unless  a  change  is  known  to  have  occurred. 
Let  us  begin  with  the  attempt  to  find  housing  cost. 
Boiler-room  service  is  one  element  in  it.  In  trying  to  get 
boiler-room  cost,  therefore,  we  assume  a  reasonable  arbi- 
trary cost  of  board,  rooms,  and  laundry  for  our  boiler-room 
force.  The  amount  for  board,  rooms,  and  laundry,  plus  the 
wages,  gives  the  total  of  HS ;  but  this  amount  should  not 
be  entered  yet  on  the  books  as  a  debit  to  HS,  for  some  of 
the  items  are  not  yet  accurately  known.  A  part  of  this 
total  is  now  debited  to  the  accounts  shown  on  the  Engi- 
neer's Monthly  Summary  for  their  share  of  his  time  and  in 
the  ratio  there  shown — but,  of  course,  HS,  which  repre- 
sents the  cost  of  engineer's  time  devoted  to  the  engine,  need 
not  be  debited  now,  for  it  will  absorb  in  the  end  any  undis- 


CLOSING    PROCESSES  177 

tributed  balance.  HS  will  be  credited  at  the  time  that  the 
other  accounts  are  debited,  of  course.  (See  closing  entry 
No.  4.)  HS  has  now  a  credit  balance,  but  it  will  be  debited 
later  for  HSs  and  for  the  actual  charges  to  HSb,  HSr,  and 
HSl.  (See  closing  entries  No.  10,  No.  11,  No.  12,  No. 
15).  When  these  debits  have  been  made,  later,  HS  will 
have  a  debit  balance;  and  this  balance  will  be  the  actual 
cost  of  power  service. 

Charges  for  Power 

If  electric  power  is  used,  it  should  be  separately  metered 
for  each  department  using  it.  If  power  is  taken  from  the 
boiler,  the  power  used  for  each  department  should  be  deter- 
mined as  exactly  as  possible  by  competent  engineers,  and 
the  distribution  made  accordingly;  but  since  here  the  cost 
for  each  department  is  a  share  not  merely  of  the  fuel,  but 
of  all  the  costs  of  the  boiler-room,  the  debit  to  TP  should 
be  not  only  HF,  but  also  the  balance  of  HS,  as  already  fig- 
ured— that  is,  HSs  plus  estimated  HSb  plus  estimated  HSr 
plus  estimated  HSl,  minus  the  amount  debited  to  other  de- 
partments from  form  22.  If  the  water  consumption  is  large 
^-e.  g.,  because  no  condenser  is  used — HW  should  be  in 
part  charged  to  TP.  (See  closing  entry  No.  5.)  Then  TP 
should  be  credited  and  the  various  power-consuming  de- 
partments should  be  debited  for  their  consumption.  The 
balance  of  TP  will  then  usually  represent  the  cost  of  ele- 
vator service  and  heating.  No  two  institutions  may  have 
quite  the  same  conditions  with  regard  to  power,  but  figures 
for  the  following  accounts  must  usually  be  provided  for 
by  some  process  similar  to  that  described  above  :  PMp  ( for 
sterilization),  DKmf  (for  steam  tables,  etc.),  DLmf  (for 
laundry  steam),  HP.      (See  closing  entry  No.  6.) 

If  other  departments  use  directly  fuel  originally  charged 
to  HF,  they  should  be  debited  (e.  g.,  DKmf  and  DLmf) 


178  COST  ACCOUNTING  FOR  INSTITUTIONS 

and  HF  credited,  for  the  weight,  at  purchase  prices,  each 
month. 

Charges  Based  on  Floor  Space 

The  following  are  to  be  closed  periodically  into  THS, 
which  is  to  absorb  the  amount  to  be  distributed  later  on 
the  basis  of  floor  space  occupancy:  HW,*  HO,  HL,  HR, 
HMO,  HXQ,  HIQ,  HZ.  To  this  account  should  also  be 
charged  the  amount  of  DHs,  DHb,  DHr,  DHl,  DHmz, 
DHiz,  DHxz,  DHf— and  DH  should  be  credited.!  (See 
closing  entry  No.  7.)  Entries  will  not  be  made  to  DHs, 
DHb,  etc.,  at  this  time,  for  some  are  not  yet  accurately  de- 
termined, and  these  accounts  need  not  be  closed  into  DH 
until  the  end.  Since  three  charges  named  (DHb,  DHr, 
DHl)  cannot  be  exactly  determined  until  after  THS  itself 
has  been  found  ( for  they  are  all  dependent  on  the  distribu- 
tion of  THS),  in  the  first  month  of  the  use  of  this  system 
they  must  be  taken  arbitrarily  at  a  fair  estimate  for  this  cal- 
culation. In  subsequent  months,  the  figure  of  the  preceding 
month  had  best  be  taken  arbitrarily  unless  known  charges 
suggest  increase  or  decrease.  The  amount  of  error  result- 
ing from  this  estimate  is  small  in  any  department,  and  is 
corrected  before  final  costs  are  reached.  The  debits  to 
these  accounts  (DHb,  DHr,  DHl),  therefore,  should  not 
be  made  until  the  amounts  have  been  exactly  determined; 
then  any  balance  should  be  carried  to  the  adjustment  ac- 
counts, as  explained  later. 

THS  is  to  be  distributed  on  the  percentage  shown  on 
the  Space  Cost  Distribution  sheet  (form  24)  to  the  fol- 
lowing accounts:  ASr,  AOh,  ATr,  ATh,  PSrp,  PSrw, 
PSrz,  PMr,  PMh,  PDr,  PDh,  PEr,  PEh,  PHr,  PHh,  PXr, 
PXh,  DMr,  DMh,  DPr,  DPh,  DTr,  DTh,  DSr,  DSh,  DKr, 

•  See  note   on  p.    179. 

t  All  these  processes  are  worked  out  with  actual  figures  in  Appendix  D,  and 
this  particular  process  is  shown  on  page  223.  Both  general  and  subordinate 
ledger  follow — but  in  skeleton  form. 


CLOSING    PROCEgSES  179 

DKh,  DHr,  DLr,  DLh,  HSr,  RHP,  RHW.  Few  institu- 
tions engage  in  all  the  activities  represented  by  these  ac- 
counts, but  the  books  should  show  them  for  those  which 
do.     ( See  closing  entry  No.  8. ) 

Charges  Based  on  Cubic-Space  Occupancy 

The  following  are  to  be  closed  periodically  into  THC, 
which  is  to  be  distributed  on  the  basis  of  cubic-space  occu- 
pancy:  HT,  HE,  HG,  HP,  HMB,  PIXB,  HMP,  HN, 
HIB.*     (See  closing  entry  No.  9.) 

This  distribution  is  made  on  the  percentages  shown  on 
the  Space  Cost  Distribution  sheet  (form  24),  to  the  same 
accounts  as  was  THS — unless  for  some  reason  a  space  in- 
volved in  one  space  cost  is  not  involved  in  the  other.  If 
any  space  is  only  partly  lighted  and  partly  heated,  it  may 
count  for  less  in  the  distribution ;  but  the  total  cubic  cost  is 
made  up  of  so  many  elements  that  an  immunity  in  one  par- 
ticular is  likely  to  be  offset  by  extra  costs  in  others,  and 
the  average  is  likely  to  be  fair.  Straight  subdivision  by 
space  is  recommended  for  the  sake  of  uniformity;  but  when 
buildings  of  various  grades  are  used  by  the  same  institution, 
such  as  stables,  power  plants,  etc.,  either  separate  schedules 
should  be  used  for  each  grade  of  building  or  all  should  be 
brought  to  a  common  unit  of  cost  by  multiplying  or  divid- 
ing dimensions.  (Since  the  debit  accounts  are  the  same  as 
for  THS,  entry  No.  8,  the  closing  entry  is  not  given.  The 
two  entries  may  well  be  combined  into  one.) 

*  The  line  drawn  between  those  things  to  be  distributed  on  floor  space  and 
those  on  cubic  space  is  necessarily  more  or  less  arbitrary.  To  be  exact,  one 
might  say  that  part  of  the  water  (for  bathing  and  cooking)  should  be  distributed 
on  a  per  capita  basis,  part  (for  scrubbing)  on  floor  space,  and  part  (for  heating) 
on  cubic  space.  Of  course  this  would  be  an  absurd  refinement.  The  method 
adopted  here  is  to  distribute  on  cubic  space  only  those  house  charges  which  are 
affected  directly  by  the  height  of  rooms,  and  to  distribute  all  other  house  charges 
on  floor  space.  Water  consumption  known  to  be  chargeable  to  the  laundry,  if 
expensive,  should  be  charged  to  DLmz  before  the  debit  balance  of  HW  is 
distributed. 


i8o  COST  ACCOUNTING  FOR  INSTITUTIONS 

Household  Charges 

The  amount  of  DHmd,  DHxd,  and  DHid  should  be 
credited  to  DH,  and  the  various  accounts  for  rooms  (sym- 
bol r)  should  be  debited,  on  the  basis  of  the  number  of 
beds.  If  differences  in  quality  of  equipment  prevail,  al- 
lowance should  be  made.  (See  closing  entry  No.  lo. ) 
Similarly,  the  amount  of  DHmt,  DHxt,  and  DHit  should 
be  credited  to  DH  and  the  various  accounts  for  board  (sym- 
bol b)  should  be  debited,  on  the  basis  of  the  number  of 
persons  boarded.  (  See  closing  entry  No.  1 1 . )  The  distri- 
bution of  these  maintenance  expenditures  should  be  made  to 
each  department  even  though  no  expenditure  occurs  within 
the  month  for  the  rooms  used  by  the  particular  department ; 
for  it  is  easier  to  maintain  a  constant  ratio  than  to  vary 
individual  departments  month  by  month,  and  it  produces 
the  same  result  in  the  end  if  the  ratio  is  correct;  for  any 
proportion  of  the  total  expenditure  for  all  departments, 
for  each  month,  charged  to  any  department  each  month,  is 
the  same  in  the  end  as  that  proportion  of  the  total  monthly 
expenditures  for  the  same  number  of  months.  Whether 
in  any  month  the  dormitory  replacements  happen  to  be  for 
any  particular  department  does  not  matter — if  only  each 
department  bears  its  proportion  of  total  dormitory  replace- 
ments of  all  the  departments  for  all  the  months. 

Laundry  Charges 

For  DLl  and  DLb  an  arbitrary  figure  should  be  tem- 
porarily assumed  (but  after  the  first  year  the  last  year's 
figures  should  be  taken,  unless  there  is  reason  to  assume  an 
increase  or  a  decrease),  and  then  the  sum  of  these  items 
and  all  the  other  DL  accounts  should  be  distributed  as 
debits  to  the  various  accounts  representing  laundry  charges 


CLOSING   PROCESSES  l8l 

to  the  departments.*  (No  entry  should  be  made  to  DLl 
and  DLb  until  the  exact  amounts  have  been  determined  by 
the  appropriate  entries.)  When  these  debits  are  made  to 
departments  for  laundry  work,  DL  (not  DLl  and  DLb) 
should  be  credited.  The  distribution  of  debits  to  the  vari- 
ous 1  accounts  (ASl,  ATI,  PSlp,  PSlw,  PSlz,  PMl,  PDl, 
PEl,  PHI,  PXl,  DM1,  DPI,  DTI,  DSl,  DKl,  DHl,  DLl, 
HSl,  RLP,  RLW)  will  be  determined  by  laundry  statistics, 
showing  the  amount  of  work  done  for  the  various  depart- 
ments. (See  closing  entry  No.  12.)  As  was  indicated  in 
connection  with  the  other  accounts,  any  reasonable  error  in 
the  estimate  for  DLl  and  DLb  will  produce  little  effect  on 
any  one  department,  because  it  is  so  widely  distributed,  and 
it  is  corrected  before  the  final  cost  figures  are  reached. 

Food  Charges 

To  TB  should  then  be  debited  the  total  of  all  costs  for 
the    period    in    the    Steward's    Department    and    in    the 

•  No  very  satisfactory  method  of  distributing  laundry  costs  has  been  found. 
It  is  always  j>ossible  to  find  the  cost  per  hundred  pieces,  and  distribute  on  that 
basis;  but  that  burdens  some  departments  unduly  and  leads  to  unfair  compari- 
sons between  institutions  that  change  linen  in  different  proportions  from  others. 
An  institution  changing  tablecloths  frequently,  but  napkins  infrequently,  will 
show  a  higher  laundry  cost  per  hundred  than  one  reversing  this  practice,  even 
though  the  actual  laundry  cost  is  the  same.  The  most  satisfactory  method  is  to 
make  a  time  study  of  laundry  operations  (under  the  actual  conditions  prevailing 
in  the  institution)  and  learn  how  many  articles  of  each  sort  are  equivalent  to  one 
of  a  standard  or  unit  sort.  In  one  laundry  studied  by  the  writer  and  Mr.  John 
E.  Hyde,  an  advanced  student  in  business  administration,  hand  towels  were 
taken  as  the  unit  and  other  articles  were  rated  as  equal  in  cost  to  a  certain 
number  of  units.     The  table  follows: 

Hand    towels    i  Pillow    slips    i  ^ 

Napkins     1%  Sheets     6 

Towels    (av.    length)....    1%  Table   cloths    la 

These  figures,  it  will  be  noticed,  are  independent  of  absolute  cost.  Whether 
any  or  all  of  these  things  cost  more  or  less  than  they  should  is  another  question. 
These  figures  make  it  possible  to  know  what  proportion  of  laundry  cost  should  be 
borne  by  each  department,  for  when  all  laundry  work  sent  by  departments  is 
converted  into  units,  the  proportion  to  be  borne  by  each  is  obvious. 

The  figures  above  should  not  be  taken  offhand  as  applicable  to  other  institu- 
tions, for  they  were  derived  from  a  somewhat  inadequate  number  of  time-studies 
in  a  laundry  that  gives  special  attention  to  careful  folding  (square  corners,  even 
folds,  etc.)  of  table  linen.  Each  laundry  should  be  the  scene  of  study  for  its 
own  conditions.  Washing,  extracting,  tumbling,  sorting,  ironing,  folding — all 
should  be  observed. 


l82  COST  ACCOUNTING   FOR   INSTITUTIONS 

Kitchen  Department.  The  amount  properly  belonging  to 
any  month  may  be  more  or  less  than  the  amount  already 
entered  on  the  books  at  this  stage,  however.  More  food 
may  have  been  purchased,  for  instance,  than  has  been  con- 
sumed. If,  then,  the  inventory  of  food  is  larger  in  any 
month  than  in  the  preceding  month,  the  debit  to  TB  for 
food  supplies  should  be  less  than  the  total  of  all  DSm  ac- 
counts by  the  amount  of  such  increase  of  inventory;  and  if 
the  inventory  is  less,  the  amount  chargeable  to  TB  on  ac- 
count of  food  supplies  should  be  greater  than  DSm  by  that 
shrinkage.  Assumed  charges  for  DSb  and  DKb  (by  the 
methods  and  for  the  reasons  previously  explained  in  other 
connections)  should  be  added  to  these  costs  for  DK  ac- 
counts and  DS  accounts,  and  then  the  total  for  DS  and  for 
DK  should  be  charged  to  TB;  and  DS  and  DK  should  be 
credited  for  the  amounts  found  for  each;  but  DSb  and 
DKb  will  not  be  debited  until  the  exact  amount  is  deter- 
mined by  the  distribution.     (See  closing  entry  No.  13.) 

It  will  be  noted  that  at  the  end  of  the  first  month  the 
food  accounts  will  have  been  debited  for  the  stores  pur- 
chased (in  DSm  accounts),  and  will  have  been  credited 
(in  DS)  for  the  food  consumed,  as  just  indicated.  Then 
DS  will  have  a  debit  balance  at  the  end  of  the  month  equiv- 
alent to  the  inventory  of  supplies  on  hand.  (Any  excess 
debit  balance,  above  this  inventory,  or  deficient  debit  bal- 
ance, below  it,  arises  from  a  distribution  of  costs  before 
actual  costs  have  been  determined,  and  will  be  disposed  of 
as  indicated  later.)  This  inventory  figure  may  well  be 
carried  to  an  inventory  account  (appearing  in  the  balance 
sheet  as  materials  on  hand),  thus  closing  DS  by  an  entry 
debiting  Inventories  of  Material  (U),  and  crediting  DS. 
Each  month  Inventories  of  Material  should  be  debited  for 
additions  and  credited  for  shrinkages,  and  DS  should  be 
correspondingly  credited  or  debited.     Since  DS  is  a  pure 


CLOSING   PROCESSES  183 

expense  account,  it  should  show  the  cost  of  what  is  con- 
sumed. It  is  unnecessary  to  allow  for  exact  record  of  in- 
ventory, on  the  ledger,  for  each  class  of  food  supply.  Since 
the  group  account,  DS,  allows  for  the  total,  the  expense 
ledger  may  omit  detailed  inventories.  It  is  well,  however, 
to  provide  in  the  expense  ledger  a  column  for  changes  in 
the  inventory,  for  then  the  balance  of  the  expense  ledger 
will  agree  with  the  balance  of  the  general-ledger  account 
for  the  department — which  will  be  a  true  controlling  ac- 
count. This  expense-ledger  account,  which  we  may  call 
"inventory  changes"  (DSv),  will  then  be  a  true  nominal 
account.  It  will  be  debited  for  any  shrinkages  in  supplies 
on  hand,  and  will  be  credited  for  any  increases;  and  a 
shrinkage  means  a  consumption  of  more  than  was  debited 
through  purchases,  and  an  increase  means  a  consumption 
of  less.  The  entry  to  DS  in  the  general  ledger  is  made 
through  the  special  inventory-changes  account  in  the  ex- 
pense ledger — from  which  ledger,  of  course,  all  other  en- 
tries reach  the  general-ledger  accounts.  The  actual  amount 
of  inventory  will  be  kept  in  Inventories  of  Materials — a 
general-ledger  account  representing  property — and  this  will 
be  debited  (as  the  departmental  inventory-changes  account 
is  credited)  for  any  increases  in  inventory,  and  will  be 
credited  for  any  decreases  (as  the  departmental  inventory- 
changes  account  is  debited).  (See  closing  entry  No.  14.) 
If  at  any  time  it  is  desired  to  show  on  the  books  the  exact 
consumption  (and  not  merely  the  purchases)  of  each  kind 
of  food  represented  by  an  account,  this  can  be  done  by  clos- 
ing tile  inventory-changes  account  into  the  accounts  for  the 
various  foods.  This  will  not  affect  the  general-ledger  ac- 
count, for  it  will  merely  shift  balances  among  subdivisional 
accounts. 

This  .same  device  may  be  used   for  other  departments 
purchasing  supplies  in  advance  of  requirements  (like  DKmf, 


l84  COST  ACCOUNTING  FOR   INSTITUTIONS 

PSm,  DHmd,  DHmt,  DHmz).  The  account  for  inventories 
of  material  may  be  kept  with  little  labor  if  the  form  rec- 
ommended for  the  expense  ledger  is  used  for  the  various 
details  (total  for  each  department),  and  in  the  general 
ledger  is  the  controlling  account,  Inventories  of  Ma- 
terials (U).  It  should  be  remembered,  however,  that  the 
debit  balances  of  this  account  at  any  time  represent  prop- 
erty, but  the  debit  balances  of  the  inventory-changes  ac- 
counts, showing  shrinkages,  represent  expense. 

TB  should  next  be  credited  for  its  total,  and  the  corre- 
sponding debits  should  be  distributed  to  the  various  board 
accounts  in  the  ratios  (percentages)  shown  on  the  Distri- 
bution of  Food  Costs  (form  20),  as  follows:  ASb,  ATb, 
PSbp,  PSbw,  PSbz,  PMb,  PDb,  PEb,  PHb,  PXb,  DMb, 
DPb,  DTb,  DSb,  DKb,  DHb,  DLb,  HSb,  RBP,  RBW. 
(See  closing  entry  No.  15.) 

Charges  for  Professional  Services 

The  cost  of  services  of  persons  engaged  exclusively  in 
the  professional  care  of  patients  in  private  rooms  and  of 
patients  in  wards  should  now  be  transferred  to  RSP  and 
RSW;  for  example,  if  patients  in  private  rooms  engage 
their  own  physicians,  PSd  should  be  charged  to  RSW,  by 
a  credit  to  PS  for  the  total  of  the  account  and  a  debit  to 
the  RSW.  Similarly,  if  the  special  nurses  and  special  or- 
derlies are  engaged  exclusively  in  private-room  service,  PS 
should  be  credited  for  the  total  of  PSnp  and  PSop,  and 
RSP  should  be  debited.  So  also  the  amount  of  PSbp,  PSrp, 
and  PSlp  should  be  debited  to  RSP,  and  PS  should  be  cred- 
ited; and  PSbw,  PSrw,  PSlw  should  be  debited  to  RSW, 
and  PS  should  be  credited.  Then  the  time  of  each  class  of 
persons  engaged  in  serving  both  private  rooms  and  wards 
should  be  divided  as  accurately  as  possible  between  the  two 
classes  of  service,  and  on  the  basis  of  that  division  the  re- 


Closing  processes  185 

maining  charges  for  professional  salaries  should  be  divided ; 
and  RSP  and  RSW  should  be  debited,  and,  of  course,  PS 
should  be  credited.  Finally,  on  the  same  basis  of  division 
(say  30  per  cent  for  RSP  and  70  per  cent  for  RSW),  the 
totals  of  PSbz,  PSrz  and  PSlz  should  be  debited  to  RSP 
and  RSW,  and  PS  should  be  credited.  Next  PQ  and  PM 
should  be  closed  into  RSP  and  RSW  in  the  proportion  of 
the  number  of  patient-days  of  each  class  of  service.  Of 
course  these  entries  will  be  combined  into  one.  (See  clos- 
ing entry  No.  16.) 

Closing  Subsidiary  Expense  Accounts 

The  next  step  is  to  close  certain  detailed  expense  ac- 
counts of  the  subordinate  ledger  into  the  general  ledger. 
For  example,  PS  has  been  credited  for  the  amount  trans- 
ferred to  RSP  and  RSW,  but  it  has  been  debited  nothing; 
and  the  various  subordinate  accounts  under  PS  have  been 
debited  for  salaries,  wages,  board,  etc.,  but  have  been  cred- 
ited for  nothing.  The  subordinate  accounts  for  PS  in  the 
expense  ledger  should  now  be  posted,  or  transferred,  to 
the  general-ledger  account  PS.  This  process  should  be  ap- 
plied to  all  subordinate  expense  accounts — and  their  corre- 
sponding group  accounts  in  the  general  ledger — except 
those  for  the  ultimate  groups  of  cost,  which  are  to  absorb 
a  part  of  the  administrative  expense.  The  accounts  to  be 
closed  at  this  point  are  the  following:  PS,  PQ,  PM,  DS, 
DK,  DH,  DL,  HS,  HZ.  Certain  general-ledger  accounts 
— PS  for  instance — will  be  closed  by  this  process.  The  rec- 
ord of  the  amount  of  PS  is  already  transferred  to  RSP  and 
RSW,  and  therefore  is  not  lost.  The  only  complication 
will  occur  in  a  few  accounts  from  which  transfers  were 
made  before  the  exact  cost  was  known,  as  with  HS.  There 
slight  discrepancies  will  appear,  for  these  accounts  will  have 
small  balances  to  be  adjusted.     These  balances  should  be 


1 86  COST  ACCOUNTING  FOR   INSTITUTIONS 

closed  out  into  the  appropriate  resident  accounts,  for,  as  the 
institution  is  conducted  primarily  for  residents,  the  bal- 
ances are  chargeable  or  creditable  to  the  ultimate  resident 
accounts.  The  following  accounts,  for  example,  may  have 
small  balances:  DS,  DK,  DH,  DL,  HS.  Obvious  entries 
will  close  them.     (See  closing  entries  Nos.  17,  18,  19.) 

The  expense-ledger  items  for  AS,  AO,  AT,  should  now 
be  closed  into  their  group  accounts  in  the  general  ledger. 

Administrative  Charges 

All  departmental  costs  have  now  been  closed  to  the 
various  departments,  and  various  department  accounts  have 
been  closed  into  ultimate  accounts,  and  only  administrative 
costs  remain  undistributed.  These  may  now  be  distributed 
as  a  percentage  on  the  costs  previously  found.*  If  total  de- 
partmental costs,  exclusive  of  administration,  are  $33,000, 
and  the  administrative  cost  is  $3,300,  obviously  10  per  cent 
should  be  added  to  the  cost  for  each  ultimate  account.  A 
trial  balance  taken  at  this  stage  would  show  for  expense  ac- 
counts only  the  following  with  any  balances :  AS,  AO,  AT, 
AL,  AZ,  PD,  PE,  PH,  PX,  DM,  DP,  DT,  RHW,  RHP, 
RBW,  RBP,  RLW,  RLP,  RSW,  RSP.  If  the  sum  of 
the  first  five  is  divided  by  the  sum  of  all  the  others,  the 
quotient  will  give  a  percentage  of  administration  cost.  This 
percentage  applied  to  the  amount  for  each  resident  account 
or  department  account  will  give  the  proper  charge  for  ad- 
ministration to  that  division.  Since,  however,  it  is  absurd 
to  figure  administration  separately  as  an  element  of  cost  for 
patients'  service,  patients'  food,  patients'  laundry,  etc.,  this 
percentage  can  well  be  applied  at  once  to  the  sum  of  RHW, 
RBW,  RLW,  RSW  for  ward  patients,  and  to  the  sum  of 
RHP,  RBP,  RLP,  RSP  for  private-room  patients.     The 

•  Sometimes  other  bases  should  be  used,   for  certain  departments  may  require 
special   attention,    or   their  work   may  involve   special   bookkeeping  costs,  etc. 


CLOSING   PROCESSES 


187 


amount  should  be  debited  to  RAW  and  RAP  respectively. 
The  debits  to  the  other  activities  designated  above  (PD, 
PE,  PH,  PX,  DM,  DP,  DT)  should  be  made  through  their 
subordinate-ledger  accounts  (symbol  z — miscellaneous)  in 
each  case.  Of  course  the  entries  debiting  these  various  ac- 
counts will  credit  the  administrative  accounts  named  above. 
This  will  close  o*.*^  the  administrative  accounts.  (See  clos- 
ing entry  No.  20.) 

Final  Expense-Ledger  Closing 

The  expense-ledger  accounts  for  the  remaining  groups 
should  now  be  closed  into  the  general-ledger  accounts  for 
the  corresponding  groups. 


Closing  Entries 

No. 

I 

E 

[continued] 

DHiz 

PMo 

X 

DLi 

DSo 

M 

HIB 

To  HO 

T 
S 

HIQ 
To  ICIH 

No. 

2 

K 

AOx 

R 

No 

ATx 

F 

PSo 

PMx 

H 

PMs 

PDx 

L 

DSs 

PEx 

B 

DSmvf 

PXx 

Q 

DHs 

DMx 

HE 

DTx 

No 

3 

HMB 

DSx 

AOi 

HL 

DKx 

PMi 

HMQ 

DHxd 

PDi 

HMP 

DHxt 

PEi 

B 

DHxz 

PXi 

ToHS 

DLx 

DMi 

HXB 

DTi 

No 

HXQ 

DSi 

TP 

To  A 

DKi 

ToHF 

I 

DHid 

HS 

D 

continued] 

DHit 

[continued] 

HW 

[continued] 


i88 


COST  ACCOUNTING   FOR   INSTITUTIONS 


No.  6 

DSh             [continued] 

No 

PMp 

> 

DKr 

ASb 

DKmf 

DKh 

ATb 

DLmf 

DHr 

PSbp 

HP 

DLr 

PSbw 

ToTP 

DLh 

PSbz 

HSr 

PMb 

No.  7 

RHP 

PDb 

THS 

RHW 

PEb 

ToDH 

To  THS 

PHb 

HW 

PXb 

HO 

No.  9 

DMb 

HL 

THC 

DPb 

HR(?) 

ToHT 

DTb 

HMQ 

HE 
HG 

TTT» 

DSb 

HXQ 

DKb 

HIQ 
HZ 

HP 
HMB 

DHb 
DLb 

HXB 

HSb 

ASr 
AOh 

No.  8 

HMP 

HN 

HIB 

RBP 
RBW 
ToDH 

ATr 

No.  lo 

No. 

ATh 

ASr 

ASl 

PSrp 

ATr 

ATI 

PSrw 

PSrp 

PSlp 

PSrz 

PSrw 

PSlw 

PMr 

PSrz 

PSlz 

PMh 

PMr 

PMl 

PDr 

PDr 

PDl 

PDh 

PEr 

PEl 

PEr 

PHr 

PHI 

PEh 

PXr 

PXl 

PHr 

DMr 

DM1 

PHh 

DPr 

DPI 

PXr 

DTr 

DTI 

PXh 

DSr 

DSl 

DMr 

DKr 

DKl 

DMh 

DHr 

DHl 

DPr 

DLr 

DLl 

DPh 

HSr 

HSl 

DTr 

RHP 

RLP 

DTh 

RHW 

RLW 

DSr 

[continued] 

ToDH 

ToDL 

II 


CLOSING    PROCESSES 


189 


No.  13 
TB 
ToDK 
DS 


U 


No.  14 

To  DSv 

(or  reversed) 


No.  15 


ASb 

ATb 

PSbp 

PSbw 

PSbz 

PMb 

PDb 

PEb 

PHb 

PXb 

DMb 

DPb 

DTb 

DSb 

DKb 


[continued] 


DHb 

[continued] 

To  DS      [continued] 

DLb 

DK 

HSb 

(or  reversed  for  either 

RBP 

DS  or  DK) 

RBW 

ToTB 

No.  19 
RLP 

No. 

16 

RLW 

RSP 

ToDL 

RSW 

(or  reversed) 

To  PS 

PQ 
PM 

No.  20 
RAP 
RAW 
PDz 

No. 

17 

PEz 

RHP 

PHz 

RHW 

PXz 

ToDH 

DMz 

HS 

DPz 

(or  reversed  for  either 

DTz 

DH  or  HS) 

To  AS 

AG 

No. 

18 

AT 

RBP 

AL 

RBW 

[continued] 

AZ 

The  actual  working  out  of  these  entries,  with  figures,  is 
given  in  Appendix  D.  The  general  ledger  and  the  subordi- 
nate ledger  are  both  shown  there  in  skeleton  form. 

Schedule  4 — Pinal  Summary  of  Institution  Expenses 

The  balances  of  expense  now  remaining  on  the  ledger 
are  for  ultimate  accounts  only,  ready  for  use  in  the  sum- 
mary schedule  of  expenses,  as  follows: 


Dispensary 
Emergency  Ward 
Home  Nursing 
X-Ray  Service 


I90  COST  ACCOUNTING  FOR   INSTTIUTIONS 

Ambulance  Service 
Pathological  Laboratory 
Training  School 
Private-Room  Patient  Housing 
Ward  Patient  Housing 
Private-Room  Patient  Board 
Ward  Patient  Board 
Private-Room  Patient  Laundry- 
Ward  Patient  Laundry 
Private-Room  Patient  Professional  Service 
Ward  Patient  Professional  Service 
Private-Room  Patient  Administrative  Cost 
Ward  Patient  Administrative  Cost 

These  are  grouped  for  reporting  purposes — for  general 
comparison  with  other  institutions — as  shown  on  pages  192- 
193.  For  some  of  the  details  shown  on  this  schedule  refer- 
ence must  be  made  to  calculations  off  the  books,  as  on  form 
18;  other  details  are  in  the  subordinate  ledger;  and  others 
are  in  the  general  ledger.  Of  course  uniformity  could  be 
produced  by  getting  all  desired  figures  into  the  general 
ledger;  but  this  would  unduly  complicate  the  bookkeeping. 
The  complete  schedule  of  expenses,  showing  all  principal 
and  subordinate  accounts,  should  be  published  in  full  if 
comparative  study  is  to  be  worth  much;  this  schedule  IV  is 
meant  for  summary  use  only. 

Purpose  of  Summary  Schedule  of  Expenses 

For  many  purposes  this  schedule  is  the  most  important 
of  all.  It  attempts  to  give  the  final  figures  for  enabling  us 
to  make  a  comparison  between  the  institution  for  which  the 
figures  are  shown  and  any  other  institution  with  which  a 
comparison  is  desirable.  As  will  be  seen  from  the  form 
itself,  three  main  types  or  groups  of  expenses  are  shown. 
These  are  administrative  expenses,  the  cost  of  professional 


CLOSING   PROCESSES 


191 


care  of  patients,  and  the  living  expenses.  These  groups 
are  shown  because  they  represent  the  ultimate  purpose  of 
all  expenses  within  such  an  institution  as  a  hospital.  The 
prime  function  is,  of  course,  to  provide  professional  care 
of  patients,  and  this  group  therefore  is  the  all-important 
group ;  but  since  professional  care  cannot  be  rendered  with- 
out providing  housing  and  board  for  patients,  the  living  ex- 
penses form  the  next  most  important  cost;  and  since  neither 
of  these  things  can  be  provided  except  through  an  adminis- 
trative force,  the  cost  of  administration  forms  a  separate 
group.  The  total  for  each  of  these  groups  is  taken  from 
general-ledger  accounts,  but  each  is  subdivided  into  its 
main  elements,  so  that  comparison  may  be  made  between 
institutions  for  those  subdivisions  as  well  as  for  the  group 
cost  in  total.  The  figures  for  the  subdivisions  are  taken 
from  the  subordinate  ledger  or  from  cost  forms. 

Certain  special  items  relating  to  professional  care  of 
patients  vary  not  so  much  with  the  number  or  kind  of 
patients  as  with  other  circumstances.  These  are  shown  on 
a  separate  statement  indicating  the  cost  per  unit  of  service. 

Arrangement  of  Summary  Schedule  of  Expenses 

The  first  column  shows  the  type  of  expense  or  service; 
the  second  shows  the  symbols  of  the  accounts  from  which 
the  information  is  obtained ;  the  third  shows  the  amount  of 
debit  to  those  accounts;  the  fourth  shows  the  total  of  the 
group  or  the  subdivision  of  a  group.  The  living  expenses 
are  divided  into  two  groups,  so  as  to  show  separately  the 
board  cost  and  the  other  costs.  For  the  upper  half  of  the 
schedule  columns  are  provided  for  ward  patients  and  for 
private-room  patients  separately.  These  give  the  cost  per 
patient-day,  not  only  for  principal  details,  but  for  the  group 
total.  The  line  at  the  foot  of  this  part  of  the  statement 
gives  the  total  for  each  column ;  and  hence  the  pairs  of  col- 


192 


COST  ACCOUNTING   FOR   INSTITUTIONS 


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CLOSING   PROCESSES 


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194  COST  ACCOUNTING   FOR   INSTITUTIONS 

umns,  since  in  each  pair  one  shows  details  and  the  other 
shows  totals,  should  agree.  The  lower  half  of  the  form, 
showing  items  for  which  the  patient-day  is  not  a  signifi- 
cant unit,  names  the  unit  of  service  for  each  special  type 
of  cost,  gives  the  number  of  services  performed  during 
the  period,  and  finally  the  cost  per  unit. 

From  the  figures  on  this  form,  therefore,  comparisons 
may  be  made  between  institutions  in  their  details,  in  their 
group  totals,  and  in  their  final  totals.  It  is  obvious,  also, 
that,  if  it  is  desired  to  compare  figures  for  groups  unlike 
those  shown  here,  a  different  combination  of  details  from 
this  schedule  into  such  required  groups  is  likely  to  serve 
the  purpose.  If,  on  the  other  hand,  details  here  are  not  de- 
tailed enough,  recourse  may  be  had  to  the  detailed  costs  as 
reported  in  full  on  the  schedule  recommended  in  Chapter 
IV.  If,  for  instance,  the  cost  raw  of  all  food  consumed 
(patient  or  other)  were  desired  for  comparison  between  two 
institutions,  the  debit  to  general-ledger  account  DS  would 
be  taken;  but  if  the  cost  of  food  cooked  were  desired,  the 
total  of  DS  and  DK  should  be  taken;  but  if  the  total  cost 
of  food  served  to  patients  were  desired,  the  figure  would  be 
as  shown  in  this  schedule  IV,  designated  "food  supplies." 
The  cost  for  each  patient  or  employee  per  capita  day  may 
be  readily  obtained,  of  course,  for  any  group  or  subdivision. 
The  schedule  is  on  pages   192-193. 

Closing  Entries  for  General  Ledger  Accounts 

The  balances  of  the  expense  accounts  remaining  (ten 
resident  accounts  and  seven  departmental  or  professional 
accounts)  will  now  be  closed  into  the  final  Earnings  Ac- 
count— of  which  the  purpose  is  indicated  on  the  State- 
ment of  Financial  Transactions  for  the  Year  (pages  43,  46, 
and  52).  The  various  accounts  for  income  from  hospital 
sources  will  also  be  closed  into  this  account. 


CLOSING   PROCESSES  195 

To  the  Endowment  Income  Account,  in  turn,  should 
be  credited  income  from  investments  and  from  interest 
charged  the  hospital ;  and  into  this  account  should  be  closed 
the  balance  of  the  Earnings  Account,  found  as  indicated 
above. 

To  the  Normal  Current  Income  Account  should  be 
closed  the  balance  of  the  Endow^ment  Income  Account,  and 
to  it  should  be  credited  any  contributions  received  from 
outside  sources  and  any  legacies  assigned  to  current  use. 
Corporation  expenses  should  be  debited  to  this  account. 
The  balance  of  this  account  will  be  transferred  to  Surplus 
and  Deficit  Account. 

The  accounts  for  other  kinds  of  income  and  expendi- 
ture, as  suggested  by  schedule  D  of  the  Statement  of  Finan- 
cial Transactions  (pages  52-53),  will  be  closed,  as  circum- 
stances may  warrant,  into  Special  Funds,  Capital  Account, 
Surplus,  etc. ;  but  every  item  to  appear  on  either  the  Bal- 
ance Sheet  or  the  Statement  of  Financial  Transactions 
should  be  carried  to  an  account  such  that  the  item  may  be 
identified  and  reported  when  occasion  arises.  Usually  a 
separate  ledger  account  should  be  maintained  for  each 
group  of  items  shown  on  any  of  the  schedules  here  indi- 
cated— as  the  four  groups  of  subscriptions  shown  on  sched- 
ule VII  (page  60),  and  the  three  groups  of  legacies  shown 
on    schedule    VIII    (page   61). 

Closing  Entries  for  Institutions  Other  Than  Hospitals 

The  closing  entries  for  institutions  other  than  hospitals 
are  not  usually  different  in  nature  or  in  treatment,  for  they 
require  the  same  method  of  distributing  expense  burden, 
administrative  costs,  and  the  like,  and  their  transactions 
should  be  jjublicly  reported  in  the  same  sort  of  way.  A  final 
summary  of  expenses  for  an  educational  institution,  for  ex- 
ample, could  be  provided  in  a  form  similar  to  that  of  sched- 


196  COST  ACCOUNTING  FOR  INSTITUTIONS 

ule  IV  (page  192),  substituting  salaries  and  other  compen- 
sation of  various  classes  of  instructors  for  compensation  of 
physicians  and  nurses,  adding  costs  for  libraries,  museums, 
etc.,  and  appending  laboratory  expenses,  etc.,  in  place  of  the 
cost  of  special  hospital  activities.  Such  a  statement  might 
well  be  combined  with  schedule  VI  (illustrated  on  page 
57),  so  as  to  show  ultimate  costs  in  direct  relation  with 
earned  receipts. 


APPENDIX  A 

/.  Alphabetical  Index  of  Symbols  of  Hospital  Accounts 

This  index  is  intended  quite  as  much  as  a  guide  to  the 
accounts  (a  summary  view)  as  to  the  symbols. 


A 

Administrative  Equipment 

AC 

General  Carting  (see  page  71) 

AL 

Administrative  Legal 

AO 

Administrative  Office 

f 

freight 

h 

housing 

i 

interest 

m 

supplies 

P 

postage 

X 

depreciation 

z 

miscellaneous 

AS 

Administrative  Service 

b 

board 

1 

laundry 

r 

rooms 

s 

salaries 

AT 

Telephone 

b 

board 

h 

housing 

1 

laundry 

r 

rooms 

s 

salaries 

X 

depreciation 

z 

miscellaneous 

197 


198  COST   ACCOUNTING  FOR   INSTITUTIONS 


AZ 

Administrative  Miscellaneous 

B 

Buildings  and  Improvements 

CA 

Corporation  Annual  Report 

CH 

Corporation  Housing 

CI 

Corporation  Interest 

CL 

Corporation  Legal  Expenses 

CM 

Corporation  Supplies 

CP 

Corporation  Postage 

CS 

Corporation  Salaries 

CZ 

Corporation  Miscellaneous 

D 

Dispensary  Equipment 

DD 

Serving  Department  (see  page  89) 

b 

board 

f 

freight 

h 

housing 

i 

interest 

1 

laundry- 

m 

supplies 

r 

rooms 

s 

salaries 

X 

depreciation 

DH 

Household  Department 

b 

board  (when  not  subdivided) 

bd 

board  of  chambermaids 

bt 

board  of  waitresses 

bz 

board  of  other  household  employees 

f 

freight 

id 

interest  on  dormitory  equipment 

it 

interest  on  table  equipment 

iz 

interest  on  miscellaneous  housekeeping  equipment 

1 

laundry  (when  not  subdivided) 

Id 

laundry  for  chambermaids 

It 

laundry  for  waitresses 

Iz 

laundry  for  other  household  employees 

md 

dormitory  supplies 

mt 

table  supplies 

mz 

general  supplies 

APPENDIX   A 


199 


r  rooms  (when  not  subdivided) 

rd  rooms  for  chambermaids 

rt  rooms  for  waitresses 

rz  rooms  for  other  household  employees 

s  salaries  (when  not  subdivided) 

sd  salaries  of  chambermaids 

St  salaries  of  waitresses 

sz  salaries  of  other  household  employees 

xd  depreciation  on  dormitory  equipment 

xt  depreciation  on  table  equipment 

xz  depreciation  on  miscellaneous  housekeeping  equip- 
ment 

DK  Kitchen  Department 

b  board 

f  freight 

h  housing 

i  interest 

1  laundry 

mf  fuel 

mz  supplies 

r  rooms 

sb  salaries  of  bakers 

sz  salaries  of  other  employees 

x  depreciation 

DL  Laundry  Department 

b  board 

f  freight 

h  housing 

i  interest 

1  laundry 

mf  fuel 

mz  supplies 

o  outside  work 

r  rooms 

s  salaries 

X  depreciation 


20O  COST  ACCOUNTING   FOR   INSTITUTIONS 

DM 


DP 


DS 


Department  of  Ambulance 

b 

board 

f 

freight 

h 

housing 

i 

interest 

1 

laimdry 

m 

supplies 

r 

rooms 

s 

salaries 

X 

depreciation 

z 

miscellaneous 

Department  of  Pathological  Laboratory 

b 

board 

£ 

freight 

h 

housing 

1 

laundry 

m 

supplies 

r 

rooms 

s 

salaries 

z 

miscellaneous 

( 

Steward's  Department 

b 

board 

f 

freight 

h 

housing 

i 

interest 

1 

laundry 

mb 

bread  and  pastry 

mcb 

breakfast  cereals 

mcf 

flour 

mdc 

cream 

mdf 

butter  and  other  fats 

tndm 

milk 

mdp 

condensed  milk 

mds 

cheese 

mef 

eggs,  fresh 

mep 

egg  preparations 

mes 

eggs,  storage 

DT 


APPENDIX  A                                       201 

mfc 

fruits,  canned 

mfd 

fruits,  dried 

mif 

fruits,  fresh 

mfj 

fruit  juices 

mfp 

fruits,  preserved 

mg 

groceries  and  canned  goods  not  elsewhere  specified 

mh 

sugars,  etc. 

mi 

ice  cream  purchased  outside 

mmc 

meats,  canned 

mmd 

meats,  dried,  smoked,  cured 

mmf 

meats,  fresh 

mn 

nuts 

mpc 

poultr}%  canned 

mpf 

poultr>',  fresh 

msc 

fish,  canned 

msd 

fish,  dried,  smoked,  pickled 

msf 

fish,  fresh 

mt 

tea  and  coffee 

mvc 

vegetables,  canned 

mvf 

vegetables,  fresh 

o 

ice 

r 

rooms 

s 

salaries 

V 

inventory  changes 

X 

depreciation 

z 

supplies  not  food 

Department  of  Training  School 

b 

board 

f 

freight 

h 

housing 

i 

interest 

1 

laundry 

m 

supplies 

r 

rooms 

s 

salaries 

X 

depreciation 

z 

miscellaneous 

202  COST   ACCOUNTING   FOR   INSTITUTIONS 

E  All  symbols  beginning  with  E  indicate  capital  accounts 

for  the  departments  having  as  their  general  symbols 
the  letters  following  the  E.  The  departments  will  be 
found  under  the  corresponding  symbols;  but  lone  E, 
as  well  as  EPE,  may  stand  for  Emergency  Ward 
Equipment;  for  under  one  method  shown  here  all 
capital  accounts  are  represented  by  single-letter 
symbols.     (See  also  page  35.) 


p 

Dining  Equipment 

H 

Household  Equipment,  General 

HE 

Electric  Lighting 

HF 

Fuel,  Oil,  Waste 

HG 

Gas 

HIB 

Interest  on  Buildings  and  Improvements  (including 

plumbing  and  steam-fitting) 

HIQ 

Interest  on  Machinery  and  Tools 

HL 

Care  of  Grounds 

HMB 

Maintenance  of  Buildings 

HMP 

Maintenance  of  Steam-Fitting  and  Plumbing 

HMQ 

Maintenance  of  Machinery  and  Tools 

HN 

Insiu-ance 

HO 

Ice 

HP 

Power 

HR 

Rent 

HS 

Services  of  Engineer  and  Firemen 

b 

board 

1 

laundry 

r 

rooms 

s 

salaries 

HT 

Taxes 

HW 

Water 

HXB 

Depreciation  of  Buildings,  etc. 

HXQ 

Depreciation  of  Machinery  and  Tools 

HZ 

Miscellaneous 

f 

freight 

z 

other 

APPENDIX   A 


203 


I  All  S5mibols  beginning  with  I  indicate  income  accounts, 
usually  for  departments  having  as  their  general  s>Tn- 
bols  the  letters  follov^'ing  the  I.  The  departments 
will  be  foimd  under  the  corresponding  symbols.  But 
lone  I  may  stand  for  the  capital  account  for  Appa- 
ratus and  Instruments.     (See  also  below.) 

ICD  Income  from  Stocks 

ICGC  Income  from  Churches 

ICGG  Income  from  Subscriptions,  Governmental 

ICGO  Income  from  Subscriptions,  Charitable  Organizations 

ICGP  Income  from  Subscriptions,  Private 

ICIH  Income  from  Interest  Charged  the  Hospital 

ICIO  Income  from  Outside  Interest 

ICR  Income  from  Real  Estate 

K  Kitchen  Equipment 

L  Laimdry  Equipment 

M  Ambulance  Equipment 

N  Home  Nursing  Equipment 

O  Sites  and  Grounds 

P  Pathological  Laboratory  Equipment 

PD  Professional  Care  of  Patients,  Dispensary 

b  board 

f  freight 

h  housing 

i  interest 

1  laundry 

m  supplies 

r  rooms 

s  salaries 

X  depreciation 

z  miscellaneous 

PE  Professional    Care    of    Patients,    Emergency    Ward 

b  board 

f  freight 

h  housing 

i  interest 

1  laundry 


204  COST  ACCOUNTING  FOR   INSTITUTIONS 


PH 


PM 


PQ 


PS 


m 

supplies 

r 

rooms 

s 

salaries 

X 

depreciation 

z 

miscellaneous 

Professional  Care  of  Patients,  Home  Nursing 

b 

board 

f 

freight 

h 

housing 

1 

laundry 

m 

supplies 

r 

rooms 

s 

salaries 

z 

miscellaneous 

Professional  Care  of  Patients,  Medical  and  Surgical 

Facilities 

a 

apparatus  and  instruments,  repairs  and  renewals. 

b 

board  of  pharmacists 

f 

freight 

h 

housing 

i 

interest 

1 

laundry  of  pharmacy  and  pharmacist  and  operating 

rooms 

m 

medicines,  bandages,  and  other  supplies 

0 

ice 

P 

sterilization 

r 

rooms  of  pharmacists 

s 

salaries  of  pharmacists 

w 

stimtdants 

X 

depreciation 

Professional  Care  of  Patients,  Equipment  of  Nurses 

a 

apparatus  and  instnmients 

b 

books 

u 

uniforms 

Professional  Care  of  Patients,  Service 

bp 

board  of  those  serving  patients  in  private  rooms 

bw 

board  of  those  serving  ward  patients 

APPENDIX   A 


205 


bz  board  of  those  serving  both   classes  of  patients 

d  salaries  of  physicians 

Ip  laundry  of  those  serving  patients  in  private  rooms 

Iw  laundry  of  those  serving  ward  patients 

Iz  laundry  of  those  serving  both  classes  of  patients 

ng  salaries  of  graduate  nurses 

np  salaries  of  special  nurses 

ns  salaries  of  superintending  nurses 

nt  salaries  of  nurses  in  training 

0  salaries  of  orderlies 

op  salaries  of  special  orderlies 

rp  rooms  of  those  serving  patients  in  private  rooms 

rw  rooms  of  those  serving  ward  patients 

rz  rooms  of  those  serving  both  classes  of  patients 

w  salaries  of  ward  employees 

PX  Professional  Care  of  Patients,  X-Ray  Service 

b  board 

f  freight 

h  housing 

i  interest 

1  laundry 
m  supplies 
r  rooms 

s  salaries 

X  depreciation 

z  miscellaneous 

Q  Machinery  and  Tools 

R  Dormitory  Equipment 

RAP  Residents,    Administration    for,    in    Private    Rooms 

(Patients  only) 

RAW  Residents,   Administration   for,   in  Wards   (Patients 

only) 

RBP  Residents,  Board  of,  in  Private  Rooms  (Patients  only) 

RBW  Residents,  Board  of,  in  Wards  (Patients  only) 

RHP  Residents,  Housing  of,  in  Private  Rooms  (Patients 

only) 

RHW  Residents,  Housing  of,  in  Wards  (Patients  only) 


2o6  COST   ACCOUNTING  FOR  INSTITUTIONS 

RLP        Residents,  Laundry  of,  in  Private  Rooms  (Patients 

only) 
RLW       Residents,  Laundry  of,  in  Wards  (Patients  only) 
RSP         Residents,  Professional  Service  of,  in  Private  Rooms 
RSW       Residents,  Professional  Service  of,  in  Wards 
S  Steward's  Equipment 

T  Training  School  Equipment 

TB  Transfer  Board  Account 

THC  Transfer  House  Cubic-Space  Account 
THS  Transfer  House  Floor-Space  Account 
TP  Transfer  Power 

TX  Temporary  Depreciation 

(Lower-case  additions  indicate  the  partictdar  prop- 
erty depreciated.     See  page  172.) 
U  Material  and  Stores  Inventory 

X  X-Ray  Equipment 

//.  Alphabetical  Index  of  Additional  Symbols  for  Institu- 
tions Other  Than  Hospitals 

This  index  does  not  repeat  the  symbols  given  for  hos- 
pitals, in  the  preceding  list,  and  common  to  institutions 
other  than  hospitals.  It  is  intended  quite  as  much  as  a 
guide  to  the  classification  of  accounts  (a  summary  view) 
as  to  symbols. 

No  attempt  is  made  in  this  list  to  include  all  symbols 
likely  to  occur  as  mere  subdivisions  of  general  accounts 
when  such  subdivision  is  obvious  or  has  been  already  suffi- 
ciently indicated  by  the  preceding  list  or  in  the  text.  Sym- 
bols for  detailed  subdivisions  similar  in  every  respect  to 
those  already  discussed  (for  example,  b  for  board,  r  for 
rooms,  h  for  housing,  i  for  interest,  x  for  depreciation, 
etc.)  apply  to  subdivisions  for  most  of  the  group  accounts 
here  indicated  and  therefore  do  not  need  repetition.  The 
only  symbols  for  detailed  accounts  here  indicated  are  those 


APPENDIX   A 


207 


for  accounts  more  or  less  peculiar  to  the  departments,  or 
phases  of  activity,  found  in  certain  institutions  and  not  al- 
ready sufficiently  indicated  by  somewhat  parallel  cases  in 
other  tyi:es  of  institutions. 

DA  Boats 

DAsi     salaries  of  instructors  in  rowing  and   paddling 
DAsz     salaries  of  other  employees 
DB  Library 

DBg      binding  and  rebinding  costs 
DBmb  bindery  supplies 
DBmz  general  supplies 
DBsa     salaries  of  administrative  officers 
DBsb    salaries  of  bindery  employees 
DBsc     salaries  of  cataloguers  and  classifiers 
DBse     salaries    of   runners    and    errand   boys 
DBsl     salaries  of  loan  clerks 
DBso     salaries  of  accession-department  clerks 
DBsp    salaries  of  shelf -department  clerks 
DBsr     salaries  of  reference  clerks 
DBss     salaries  of  secretarial  assistants 
DBsz     salaries  of  miscellaneous  employees 
DC  Cigar  Stand 

DD  Dining-Room  Service 

This  asstimes  a  separate  department  independ- 
ent of  the  housekeeping  department.  On 
page  89  is  shown  the  treatment  of  dining- 
room  service  as  a  subdivision  of  the  house- 
keeping department.  It  might  then  be  worth 
while  to  divide  account  f  with  the  others. 
DE  Entertainments 

DP  Cartage  Department 

(Subdivided  somewhat  as  the  stable  accoimt  is 
subdivided) 
DG  Garage 

DGmg  gasoline 
DGmo  oil 


208  COST   ACCOUNTING   FOR   INSTITUTIONS 

DGmt  maintenance  of  tires 

DGmv  maintenance  of  automobiles,  not  including  tires 

DGmz  general  supplies 

DGsc    salaries    of    chauffeurs    (drivers    who    are    also 
mechanics) 

DGsd    salaries  of  drivers 

DGsm  salaries  of  mechanics 

DGso    salaries  of  attendants 
DI  Gymnasium 

DIsa     salaries  of  attendants  and  rubbers 

DIsi       salaries  of  instructors 

DIsz      salaries  of  general  employees 
DJ  Stable 

DJmf    feed 

DJmh   maintenance  of  harnesses 

DJmr    maintenance  of  robes,  etc. 

DJmv   maintenance  of  vehicles 

DJmz    general  supplies,  including  medicines,  etc. 

DJsd     salaries  of  drivers 

DJse      salaries  of  messengers,  etc. 

DJso     salaries  of  hostlers 
DM  Exhibitions 

DN  News-stand 

DO  Bowling  Alley 

DQ  Card  Rooms 

DR  Billiard  Rooms 

DT  Tennis  Courts 

DV  Golf  Links 

DW  Baths 

DWsa  salaries  of  attendants 

DWsi    salaries  of  swimming  instructors,  etc. 

DWsz    salaries  of  other  employees 
DX  Tennis  Courts  (a  substitute  symbol  for  DT,  when 

DT  is  training  school) 
DY  Bar 

E  All    symbols   beginning   with    E    indicate    capital 

accounts  for  departments  having  as  their  general 


APPENDIX   A  209 

symbols  the  letters  following  the  E.   The  depart- 
ments will  be  found  under  the  corresponding 
symbols.     (See  also  pages  37—41). 
HH  Public  Halls 

HIO  Interest  on  the  Value  of  Sites  and  Grounds 

I  All  symbols  beginning  with  I  indicate  income  ac- 

counts for  departments  having  as  their  general 
symbols  the  letters  following  the  I.    The  depart- 
ments will  be  foimd  under  the  corresponding 
symbols. 
OA  Advertising 

OH  Hospitality 

OP  Publications  (not  advertising) 

PB  Libraries  for  Research  Work 

(For  subdivisions,  see  under  DB) 
PL  Laboratories  for  Research 

PO  Observatories  for  Research 

POmp   photographic  supplies 
POmz    general  supplies 
POp      postage 
POsc     salaries  of  computers 
POso     salaries  of  observers 
POsp     salaries  of  photographers 
POss      salaries  of  secretaries  and  recording  clerks 
POsz      salaries  of  general  employees 
SB  Libraries  for  Students 

(Subdivided  similarly  to  DB — libraries  for  institu- 
tions not  educational) 
SC  Instruction  by  Correspondence 

(See  subdivisions  under  SG) 
SCp       postage 
SE  Instruction  for  Extension  Students 

(See  subdivisions  under  SG) 
SG  Instruction  Orally  for  Students  in  Residence 

SGm      supplies  (chalk,  stationery,  etc.,  for  classes)  and 

maintenance  of  equipment 
SGsa     salaries  of  assistant  masters  or  assistant  professors 


2IO  COST  ACCOUNTING   FOR   INSTITUTIONS 

SGsd     salaries  of  assistants,  demonstrators,  etc. 
SGsi      salaries  of  teachers  or  instructors 
SGsm    salaries  of  masters  or  professors 
SGsp     salaries  of  special  teachers  or  lecturers 
SGss      secretarial  service  for  teachers 
SL  Laboratories  for  Students'  Use 

SM  Museimis  and  Other  Permanent  Exhibitions 

SO  Observatories  for  Students 


APPENDIX  B 

Alphabetical  Index  of  Common  Items  of  Hospital  Expense, 

with  the  Symbols   of  Accounts  Chargeable 

Alcohol  PMm 

Ambulance  supplies  DMm 

Annual  reports  (printing  and  mailing)  CA 

Apollinaris  DSmg 

Apparatus,  replacements  only  PMa 

Barge,  cost  of  running  HZz 

Bedding,  replacements  of  DHmd 

Books,  blank  for  hospital  AOm 

blank,  for  treasurer's  office  CM 

reference  (not  text  books)  for  nurses  PQb 

text  (not  reference  books)  for  nurses,  not  paid 

for  by  nurses  DTm 

Bread,  from  outside  DSmb 

Brooms  DHmz 

Butter  DSmdf 

Canned  goods,  not  specified  elsewhere  DSmg 

Carbonated  water  DSmg 

Car  fares  AOz 

Care  of  flower  beds  HL 

Care  of  grounds  HL 

Care  of  fruit  trees  DSmff 

Care  of  vegetable  garden  DSmvf 

Cartage                  (See  page  71,  and  also,  below.  Freight) 

Cheese  DSmds 

Coal,  boiler-room  HF 

kitchen  use  only  DKmf 

laundry  DLmf 

Cream  DSmdc 

Crockery,  replacements  of,  for  bed-rooms  DHmd 

for  table  DHmt 
211 


212  COST  ACCOUNTING   FOR   INSTITUTIONS 


Depreciation  of  buildings 

HXB 

equipment,  dormitory 

DHxd 

equipment,  table 

DHxt 

equipment,  general  household 

DHxz 

equipment,  departmental              dept.  symbol  H-x 

Diplomas 

DTm 

Dispensary  supplies 

PDm 

Egg  preparations 

DSmep 

Eggs,  culinary 

DSmes 

fresh 

DSmef 

Electric  lighting 

HE 

Emergency  ward  supplies 

PEm 

Entertainment  of  nurses  in  training 

DTm 

Express                                                              (See 

Freight) 

Fertilizer  (vegetable  garden) 

DSmvf 

Fish,  canned 

DSmsc 

fresh 

DSmsf 

smoked,  dried,  and  pickled 

DSmsd 

Flower  beds,  care  of 

HL 

Freight  on  building-  machinery  and  ground- 

maintenance  supplies 

HZf 

dispensary  supplies 

PDf 

emergency  ward  supplies 

PEf 

furniture  replacements 

DHf 

home  nursing  supplies 

PHf 

housekeeping  supplies 

DHf 

kitchen  supplies 

DKf 

laundry  supplies 

DLf 

medical  and  surgical  supplies  and  alcoholics 

PMf 

office  supplies 

AOf 

pathological  laboratory  supplies 

DPf 

steward's  supplies 

DSf 

training  school  supplies                                   « 

DTf 

X-Ray  supplies 

PXf 

miscellaneous 

AOf 

APPENDIX   B 


213 


Fruits,  canned  DSmfc 

dried  DSmfd 

fresh  DSmff 
Fuel                                                                 (See  Coal) 
Furniture  and  fixtures, 

office  (replacements)  AOz 

house  (bed-room  replacements)  DHmd 

(dining-room,  table  replacements)  DHmt 

(general  replacements)  DHmz 

Gas  HG 

Ginger  ale  DSmg 

Gloves,  surgeons'  rubber  PMm 

Graduation  expenses  DTm 

Grounds,  care  of  HL 

Home  nursing  supplies  PHm 

House  and  property  miscellaneous  expenses  HZz 

Housekeeping,  bed-room  supplies  DHmd 

dining-room,  table  supplies  DHmt 
general  supplies  (not  laundry, 

food,  kitchen,  or  boiler)  DHmz 

Ice  HO 

Ice-cream  DSmi 

Instruments,  surgical — for  nurses  PQa 

for  physicians  PMa 
Insurance,  hospital  buildings  (one  year's  proportion)  HN 
departmental  equipment,  charged  to  dep'ts 


Interest  (on  mortgages  and  loans  payable) 

Kitchen  utensils — replacements  and  maintenance 

Laundry  bills  (outside) 

Laundry  supplies 

Lawn-mowing 

Legal  expenses,  corporation,  in   connection  with 
investments,     donations     and 
legacies 
hospital,  in    connection  with  col- 
lection of  bills,  damage  suits,  etc. 


CI 

DKm 

DLo 

DLm 

HL 


CL 


AL 


214 


COST  ACCOUNTING   FOR   INSTITUTIONS 


Linen,  replacements  of,  bed-room 

DHmd 

table 

DHmt 

Machinery,  replacements  and  repairs 

HMQ 

Magazines,  (not  for  nurses) 

AOz 

(for  niirses) 

PQb 

Meat,  canned 

DSmmc 

dried 

DSmmd 

fresh 

DSmmf 

Medical  supplies 

PMm 

Messenger  service,  not  telephone  or  telegraph 

AOz 

telephone  and  telegraph 

ATz 

Milk 

DSmdm 

Miscellaneous  administrative  expense 

AZ 

Miscellaneous  corporation  expense  (all  expenses 

not  provided  for) 

CZ 

Miscellaneous  house  and  property  expense 

HZ 

Newspapers  and  periodicals  (not  for  niu-ses) 

AOz 

(for  nurses) 

PQb 

Office  supplies  (not  stationery) 

AOz 

Oil,  kerosene 

HP 

machine 

HF 

olive 

DSmdf 

Pastry,  from  outside 

DSmb 

Pathological  laboratory  supplies 

DPm 

Periodicals  (not  for  nurses) 

AOz 

(for  ntirses) 

PQb 

Plumbing,  repairs  and  replacements 

HMP 

Postage,  annual  report 

CA 

corporation  (except  annual  report) 

CP 

hospital  (not  on  annual  reports  or  notices 

5 

of  meetings) 

AOp 

Poultry,  canned 

DSmpc 

fresh 

DSmpf 

Printing,  annual  report 

CA 

corporation  (not  annual  report) 

CM 

hospital  (not  annual  reports  or  notices  of 

meetings) 

AOm 

APPENDIX    B 

2] 

Property  and  house  miscellaneous  expenses 

HZz 

Renewals,  house  furniture  and  fixtures, 

dormitory 

DHmd 

table  (dining-room) 

DHmt 

general 

DHmz 

office  fvimiture  and  fixtures 

AOz 

machinery  and  tools 

HMQ 

surgical  apparatus  and  instruments 

PMa 

Repairs  of  buildings  (not  including  additions  or 

permanent  improvements  or  plumbing) 

HMB 

housekeeping  property  (See  Renewals) 

machinery  and  tools 

HMQ 

plumbing  and  steam-fitting 

HMP 

Reports,  annual  (printing  and  mailing) 

CA 

Seeds,  lawn 

HL 

vegetable  garden 

DSmvf 

Snow-shoveling 

HL 

Soap,  dish-washing 

DKm 

laimdry 

DLm 

medicinal 

PMm 

scrubbing 

DHmz 

toilet 

DHmd 

Starch,  com 

DSmc 

laundry 

DLm 

Stationery,  corporation 

CM 

hospital 

AOm 

Steam-fitting,  repairs  and  replacements 

HMP 

Stimulants  (not  flavoring  spirits,  carbonated  waters, 

ginger  ale) 

PMw 

Surgical  instruments,  replacements  only 

PMa 

Taxes  on  property  used  for  hospital  purposes 

HT 

(other  taxes  charged  to  the  income  of  the 

specific  property) 

Telephone  rental 

ATz 

Tools,  repairs  and  replacements 

HMQ 

2l6  COST  ACCOUNTING   FOR   INSTITUTIONS 

Uniforms,  for  nurses  PQu 

Vegetables,  canned  DSmvc 

fresh  DSmvf 

Waste  (cotton,  for  boiler-room  use)  HF 

Water  HW 

Wax,  laimdry  DLm 

Wood,  boiler-room  and  fireplace  HY 

kitchen  use  only  DKmf 

X-Ray  supplies  PXm 


APPENDIX  C 

Comparison  of  Accounts   of  the  New  York  Plan   of  Accounting 
for  Hospitals  and  the  Plan  Advocated  Herein 


Number  of  Accoimt, 

Symbol  of  Account, 

New  York  Plan 

Plan  Herein 

I 

ASs 

2 

AOf ,  AOz 

3 

AOm,  AOp,  CA 

4 

ATs,  ATz 

5 

AL 

6 

AZ 

7a 

PSd 

b 

PSns 

c 

PSng,  PSnt 

d 

PSnp 

e 

PSo 

f 

PSop 

g 

PSw 

8a 

PQu 

b 

PQb 

c 

PQa 

9a 

PMa 

b 

PMm  +  alcohol 

c 

PMw  —  alcohol 

loa 

PDs 

b 

PDm 

iia 

PEs 

b 

PEm 

12a 

PHs 

b 

PHm 

13a 

PXs 

b 

PXm 

217 


2l8 


COST  ACCOUNTING  FOR   INSTITUTIONS 


14a 

DMs 

b 

DMm 

isa 

DPS 

b 

DPm 

1 6a 

DTs 

0 

DTm 

17a 

DHs 

b 

DHmd,  DHmt,  DHmz 

i8a 

DKs 

b 

DKmz,  DKmf 

19a 

DLs 

b 

DLmz,  DLmf 

20a 

DSs 

b:  bread 

DSmb 

c:  milk  and  cream 

DSmdm,     DSmdc, 
DSmi 

DSmds, 

d:  groceries 

DSmg,       DSmfc, 

DSmfd, 

DSmfj,    DSmfp, 

DSmvc, 

DSmcf,    DSmcb, 

DSmdp, 

DSmh,  DSmn,  DSmt 

e:  butter  and  eggs 

DSmdf,      DSmef, 
DSmep 

DSmes, 

f :  fruit  and  vegetables 

DSmff,  DSmvf 

g:  meat,  poultry, 

and  fish 

DSmmf,      DSmpf, 

DSmsf, 

DSmsc,    DSmsd, 

DSmmc, 

DSmpc,  DSmmd 

31 

HE 

22 

HF 

23 

HG 

24 

HO 

25 

HMB,  HL 

26 

HMQ,  HSs 

27 

HMP 

APPENDIX    C 


219 


28  HR,  or  distributed  to  depart- 

ments  (not  of  importance 
for  comparisons) 

29  HN* 

30  HZ 

31  CS 

32  CM,  CP 

33  CL 

34  CI 

35  HT 

36  cz 

In  primary  accounts,  it  will  be  noticed,  the  two  plans 
are  not  essentially  diflferent.  The  really  important  differ- 
ences lie  in  the  disposition  of  those  primary  accounts — that 
is,  the  distribution  of  them  so  that  ultimately  costs  of  vari- 
ous elements  of  service  may  be  put  on  a  unit  basis. 

*  This  is  true  only  if  all  insurance  is  carried  to  HN,  under  the  plan  herein, 
before  it  is  distributed  in  part  to  the  departments  having  insured  equipment. 
If  one  desires  to  know  the  total  cost  of  all  insurance,  that  should  be  done.  That 
complicates  the  bookkeeping,  however,  and  puts  the  emphasis  on  the  expenditure 
rather   than   on    the   service — which   sometimes  leads   to   false   economy. 


APPENDIX  D 

The  Bookkeeping  Entries  for  Imaginary  Transactions  in  a 

Hospital 

In  order  to  illustrate  more  concretely  the  actual  book- 
keeping processes,  all  the  entries  for  a  hospital  making  use 
of  the  accounts  recommended  here  (except  for  a  few  de- 
partments which  it  is  assumed  not  to  employ — as  an  emer- 
gency department  and  a  department  of  home  nursing — and 
one  or  two  which  conditions  do  not  require — because  a 
few  employees,  boiler-room  help,  for  instance,  do  not  live 
on  the  premises)  are  shown  in  the  following  pages.  All 
revenue  and  expense  accounts  are  designated  by  symbols 
only.  The  figures  used  are  approximate  figures  for  a  cer- 
tain hospital  for  a  year,  but  they  are  used  here  as  if  for  a 
month.  It  is  assumed  that  the  voucher-register  system 
with  many  special  columns,  and  a  special-column  cash  book, 
also  with  many  columns,  are  used.  The  amounts  shown  for 
the  first  entry  of  expenses  are  supposed  to  be  totals  of  spe- 
cial columns  in  one  or  the  other  of  these  books.  Only  one 
posting  will  be  required  each  month  for  each  account  ap- 
pearing on  either  of  these  books.  All  other  entries  are 
supposed  to  be  taken  from  the  journal,  and  are  no  more 
frequent  than  monthly — unless  errors  are  discovered  or  ad- 
justments are  needed  for  new  conditions  arising.  If  the 
closing  entries  were  made  only  annually,  however,  and  these 
figures  were  actually  figures  for  a  year,  the  method  would 
be  the  same  as  that  shown  here. 

Following  these  are  shown  the  general  ledger  and  the 

220 


APPENDIX    D  221 

subordinate  expense  ledger.  The  accounts  are  designated 
by  symbol  only.  From  these  can  be  seen  how  complete  is 
the  record  and  how  little  labor  is  made  by  the  bookkeeping 
requirements  of  the  many  subordinate  accounts.  The  trial 
balance  is  shown  as  it  appears  when  all  other  accounts  have 
been  closed  into  the  ultimate  accounts. 

Cash  287,750 

To  IRBP  64,000 

IRBW  50,000 

IPSN  22,000 

IPD  9,000 

IDM  250 

IZ  2,500 

Subscriptions,  etc.*  140,000 

We  assume  that  the  capital  assets  are  already  on  the 
books  (shown  in  accounts  having  a  single  capital  letter  for 
a  symbol),  with  a  credit  to  the  Capital  Account  (Proprie- 
torship) amounting  to  $1,557,500. 

The  following  is  a  single  entry,  as  if  in  a  journal,  to 
express  in  summary  form  the  debits  to  various  expense  ac- 
counts, from  the  cash  book  and  the  voucher  register,  and 
the  credit  to  cash  (either  direct  or  from  the  payment  of 
vouchers  payable). 

•  The  details  of  this  item  should  be  given  in  the  ledger  and  in  the  report,  of 
course,  and  should  be  givert  not  on  schedule  V  but  on  schedules  R,  C,  and  D. 
They  are  here  combined  merely  to  give  a  working  cash  item  on  the  books,  so  that 
the  bookkeeping  details  to   follow  shall   not  proceed  with  a  credit  item  to  cash. 


222 


COST  ACCOUNTING  FOR   INSTITUTIONS 


ASs 

16,000 

AOf 

100 

AOm 

3,500 

AOp 

300 

AOz 

40 

ATs 

2,300 

ATz 

50 

AL 

700 

AZ 

30 

PSns 

5,800 

PSng 

6,000 

PSnp 

18,000 

PSnt 

2,300 

PSo 

5,000 

PSw 

2,500 

PQu 

2,500 

PQb 

200 

PQa 

100 

PMa 

6,000 

PMm 

11,000 

PMw 

2,000 

PMf 

100 

PDs 

4,000 

PDm 

5,000 

PDf 

50 

PDz 

25 

PXs 

800 

PXm 

500 

DMs 

1,500 

DMm 

5,000 

DPS 

6,000 

DPm 

1,000 

DTs 

2,000 

Dtm 

50 

DTz 

25 

DHs 

16,000 

DHmd 

4,000 

DHmt 

2,000 

DHmz 

1,000 

DHf 

200 

DKs 

6,000 

DKmz 

1,500 

Brought  up 

141,170 

DKmf 

500 

DLs 

5,000 

DLm 

1,200 

DLmf 

600 

DLo 

50 

DSs 

1,200 

DSmb 

500 

DSmdm 

12,000 

DSmdf 

10,000 

DSmef 

5,000 

DSmff 

3,000 

DSmfc 

100 

DSmfd 

450 

DSmvf 

4,500 

DSmvc 

200 

DSmmf 

12,000 

DSmpf 

9,000 

DSmsf 

6,000 

DSmg 

10,000 

DSz 

700 

DSf 

450 

HE 

900 

HG 

700 

HF 

10,000 

HW 

500 

HO 

3,000 

HMB 

10,000 

HL 

2,500 

HMQ 

1,500 

HMP 

2,500 

HSs 

2,290 

HN 

6,000 

HZf 

50 

HZz 

100 

OS 

2,500 

CM 

800 

CP 

300 

CA 

1,500 

CL 

500 

CZ 

1,500 

To  Cash 

270,760 

APPENDIX   D 


223 


The  following  entries  are  numbered  to  correspond  with  the 
discussion  of  closing  entries  on  pages  170-187: 


Closing  Entries 

No.  I 

DKi 

300 

[Cont.] 

PMo 

500 

DLi 

600 

DSo 

2,300 

DMi 

150 

to  HO 

2,800 

HIQ 
DHid 

1,200 
390 

No.  2 

DSi 

90 

AOx 

45 

DTi 

60 

HXB 

30,000 

PXi 

150 

DHxt 

90 

To  ICIH 

34,725 

DHxz 

1,200 

PMx 

450 

No.  4 

DKx 

300 

HL 

25 

DLx 

600 

DSmvf 

50 

DMx 

150 

HE 

15 

HXQ 

1,200 

ToHS 

90 

DHxd 

390 

DSx 

90 

No.  5 

DTx 

60 

TP 

12,400 

PXx 

150 

ToHF 

10,000 

To  A 

45 

HS 

2,200 

B 

30,000 

HW 

200 

F 

90 

H 

1,200 

No.  6 

I 

450 

DLmf 

1,000 

K 

300 

DKmf 

300 

L 

600 

PMp 

4,000 

M 

150 

HP 

7,100 

1 

Q 

1,200 

ToTP 

1    12,400 

R 

390 

S 

90 

No.  7 

T 

60 

THS 

50,675 

X 

150 

ToHW 
HO 

300 
200 

No.  3 

HL 

2,525 

AOi 

45 

HMQ 

1,500 

HIB 

30,000 

HXQ 

1,200 

DHit 

90 

HIQ 

1,200 

DHiz 

1,200 

HZ 

150 

PMi 

450 

[Cont.] 

DH* 

43,600 

•  This  amount  was  determined  by  taking  the  total  DHs,  DHmz,  DHiz,  DHxz.  DHf , 
as  shown  by  the  subordinate  ledger  at  this  point,  and  adding  an  estimated  figure  for 
DHb.  DHr.  DHL 


224 


COST  ACCOUNTING   FOR   INSTITUTIONS 


No.  8 
ASr 
AOh 
PSrp 
PSrw 
PMh 
PXh 
DMh 
DPh 
DTh 
DHr 
DKr 
DKh 
DLr 
DLh 
DSh 
RHP 
RHW 
ToTHS 

No.  9 
THC 
To  HE 
HG 
HP 
HMB 
HXB 
HIB 
HMP 
HN 

No.  9a 
ASr 
AOh 
PSrp 
PSrw 
PMh 
PXh 
DMh 
DPh 
DTh 
'  DHr 
DKr 
DKh 
DLr 


1,200 
2, no 

4,ooo 
6,ooo 
3,ooo 

200 

300 
500 

425 
3,800 
1,350 

400 
375 
415 
350 
10,270 
15,980 


87,215 


2,500 

4,200 

9,000 

12,000 

6,000 

500 

400 

1,400 

900 

8,000 

2,700 

800 

800 


50,675 


915 

700 

7,100 

10,000 

30,000 

30,000 

2,500 

6,000 


[Cont. 


[Cont.] 


87,215 

This  entry  may  be  combined 
with  No.  8,  for  the  debit  accounts 
are  the  same. 


DLh 

900 

DSh 

800 

RHP 

15,000 

RHW 

21,315 

To  THC 

No.  10 
ASr 
PSrp 
PSrw 
DHr 
DKr 
DLr 
RHP 
RHW 

ToDH 

No.  II 
ASb 
PSbp 
PSbw 
DHb 
DKb 
DLb 
RBP 
RBW 

ToDH 

No.  12 
ASl 
PSlp 
PSlw 
DHl 
DLl 
DKl 
RLP 
RLW 
ToDL 

No.  13 
TB 
ToDS 
DK 


50 
300 
400 
230 
100 
100 
1,600 
2,000 


25 

80 

100 

75 

50 

50 

800 

1,000 


100 
500 
600 
400 
200 
200 
6,000 
9,900 


94,500 


4,780 


2,180 


17,900 


76,980 
17,520 


APPENDIX   D 


225 


u 


No.  14 


ToDSv 


2,000 


No.  15 

ASb 

PSbp 

PSbw 

DHb 

DKb 

DLb 

DSb 

RBP 

RBW 

ToTB 

No.  16 
RSP 
RSW 

To  PS 

PQ 
PM 

(At  this  point  the  following 
groups  of  accounts  in  the  expense 
ledger— PS,  PQ,  PM,  DH,  DK, 
DL,  DS,  HS,  HZ— should  be 
closed  into  the  corresponding  group 
accounts    in    the    general    ledger.) 


6,700 

6,000 

9,000 

12,000 

3,000 

6,000 

280 

23,510 

28,010 


57,980 
65,900 


2,000 


94,500 


87,580 

2,800 

33,500 


17 


No 
RHP 
RHW 

ToDH 


235 
270 


505 


No.  18 

RBP 

60 

RBW 

20 

ToDS 

80 

No.  1 8a 

DK 

20 

To  RBP 

10 

RBW 

10 

No.  19 

DL 

10 

ToRLP 

5 

RLW 

5 

No.  20 
PDz 

1,384 

1 

DTz 

459 

PXz 

153 

DMz 

153 

DPz 

RAW 

RAP 

306 
24,450 
13,090 

To  AS 

26,575 

AO 

10,340 

AT 

2,350 

AL 

700 

AZ 

30 

The  general  ledger,  in  skeleton  form,  showing  the  ulti- 
mate expense  and  income  accounts,  but  not  showing  the 
final  closing  into  Earnings,  Endowment  Income,  Normal 
Current  Income,  etc.,  is  shown  below.  As  a  convenient 
means  of  showing  many  accounts  at  once,  each  account, 
representing  a  ledger  page,  is  here  given  a  square  or  block. 
This  should  not  confuse  anyone  familiar  with  the  appear- 
ance of  a  ledger. 


226  COST  ACCOUNTING  FOR   INSTITUTIONS 

GENERAL  LEDGER 


A 

B 

F 

H 

I 

i.SOO             45 

1,000,000     30,000 

3,000           90 

40,000     1,200 

15.000           450 

K 

L 

M 

0 

0 

10,000                300 

20,000          600 

5,000         150 

400,000 

40,000        1,300 

R 

S 

T 

U 

X 

13.000           390 

3,000          90 

2,000           60 

2,000 

5,000         150 

Capital  Account 

Subscriptions,  etc. 

Cash 

1.557,500 

140,000 

287,750                        268,760 

IRBP 

IRBW 

IPSN 

IPD 

IDM 

IZ 

64,000 

50,000 

22,000 

9.000 

250 

2,500 

ICIH 

AS 

AO 

AT 

AL 

AZ 

34.72s 

26,57s    26,575 

10,340    10,340 

2.350  2,350 

700    700 

30          30 

PS 

PQ 

PM 

PD 

PX 

DM 

87.580    87.580 

2,800 

2,800 

33.500    33.500 

10,459 

2,4S3 

7.653 

DP 

DT 

DS 

DK                      DH 

DL 

9306 

3.979 

79,060       2.000 

76,980 

80 

17,500      17,520 
20 

51,065     43.600 

4.780 

2,180 

SOS 

17.890      17,900 
10 

HE 

HG 

HF 

HW 

HO 

900             91S 
15 

700            700 

10,000          I0,00( 

)      500            200 
300 

3.000           2.800 
200 

■■ 

HP 

HMB 

HXQ 

HXB 

HL 

7,100       7,100 

lOvOOO       10,000 

1,200 

1,200 

30,000     30,000 

2,500         2,52s 
25 

1 

HMO 

HMP 

HS 

HN 

HZ 

HIB 

I.SOO      1,500 

2, 

500       2,500 

2,290        90 
2,200 

6,000   6,000 

ISO           ISC 

)    30,000   30,000 

HIO 

THS 

THC 

TB 

TP 

1,300         I 

.3( 

)0 

50,675   50,675 

87.215    87.215 

94.S00     94.S00 

12,400     12,400 

APPENDIX   D 
GENERAL  LEDGER  [Continued] 


227 


RHP 

j               RHW 

RBP 

RBW 

RLP 

10.270 

15.000 

1,600 

33S 

IS.980 

!       21,31s 

i         2,000 

270 

800 

23.S10 

60 

10 

I.OOO              10 
28.010 
20 

6.000 

5 

RLW 

RSP 

RSW 

RAP 

RAW 

CS 

9,900              5 

S7.980 

65.900                I 

3.090 

24.450 

2. SOO 

CM 

CP 

CA 

CL 

CZ 

800 

300 

i.soo 

Soo 

1,500 

228 


COST  ACCOUNTING  FOR  INSTITUTIONS 


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APPENDIX    D 


229 


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COST  ACCOUNTING  FOR   INSTITUTIONS 


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APPENDIX   D 


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APPENDIX    D 


233 


Trial  Balance 


Capital  Account 

$1,557,500 

A 

I.4SS 

B 

970,000 

P 

2,910 

H 

38,800 

I 

14.550 

K 

9,700 

L 

19,400 

M 

4.850 

0 

400,000 

0 

38,800 

R 

12,610 

S 

2,910 

T 

1,940 

U 

2,000 

X 

4.850 

PD 

10,459 

PX 

2. 453 

DM 

7.653 

DP 

9,206 

DT 

3.979 

RHP 

27.105 

RHW 

39.565 

RBP 

24.360 

RBW 

29,020 

RLP 

5.995 

RLW 

9.89s 

RSP 

57.980 

RSW 

65.900 

RAP 

13,090 

RAW 

24.450 

ICIH 

34.725 

IRBP 

64 ,000 1 

IRBW 

50,000 1 

IPSN 

22,000 

IPD 

9.000, 

IDM 

250 

IZ 

2,500 

Subscriptions,  etc. 

140,000 

CS 

3,S0O 

CM 

800 

CP 

300 

CA 

I.S0O 

CL 

SCO 

CZ 

1, 500 

Cuh 

287.750 

;        270,760 

$2,150,735 

1   »2,IS0.73S 

234  COST  ACCOUNTING  FOR  INSTITUTIONS 

It  is  interesting  to  see  how  schedule  VI,  for  private- 
room  patients  and  ward  patients,  works  out  in  this  case. 


Symbol  of 
Accovmt 

Earnings 

Expenses 

Loss 

Private-room  patients 

IRBP 
IPSN 

64,000 
22,000 

86,000 

RHP 

27,105 

RBP 

24,360 

RLP 

5,995 

RSP 

57,980 

RAP 
IRBW 

13,090 

128,530 

42,530 

Ward  patients 

50,000 

RHW 

39,565 

RBW 

29,020 

RLW 

9,895 

RSW 

65,900 

RAW 

24,450 

168,830 

118,830 

Temporary  Depreciation 

Below  is  shown  the  working-out  of  the  treatment  of 
Temporary  Depreciation,  discussed  on  page  172,  using 
medical  and  surgical  facilities  for  illustration,  and  sup- 
posing normal  wear  and  tear  to  require  $100  a  month.  In 
case  I,  the  expenditure  is  supposed  to  be  $1,500  for  the 
year,  and  in  case  II,  $1,000. 


APPENDIX   D 

235 

Case  I 

Case  II 

PMx 

To  TXi 

1,200* 

1,200 

PMx 

To  TXi 

1,200* 

1,200 

TXi 
To  Cash 

1,500* 

1,500 

TXi 
To  Cash 

1,000* 

1,000 

PMa 
To  PMx 

1,200 

1,200 

PMa 
To  PMx 

1,000 

1,000 

I 

To  TXi 

300 

300 

TXi 
To  I 

200 

200 

Balances: 
I 
PMa     I, 

300 
200 

Cash           1,500 

Balances 
PMx        200 
PMa     1 ,000 

Cash           1,000 
I                    200 

It  is  not  usually  worth  while  to  keep  account  of  de- 
preciation of  plumbing  and  steam-fitting,  for,  if  ordinary 
repairs  are  made  and  charged  to  maintenance  (usually  not 
varying  much  from  year  to  year),  equipment  of  that  sort 
should  last  virtually  as  long  as  the  building  is  used.  If 
depreciation  is  actually  suffered,  on  the  other  hand,  it 
should  be  treated  ultimately  as  a  part  of  building  deprecia- 
tion (HXB),  and  then,  after  repairs  are  actually  made,  the 
ultimate  debit  should  be  to  HMP  (in  place  of  HMB). 
For  temporary  depreciation,  therefore,  the  only  difference 
of  treatment  from  that  just  described  would  be  the  sub- 
stitution of  HMP  for  HMB,  for  a  part  of  the  debit  of  the 
third  entry,  to  cover  the  actual  repairs.  The  depreciation, 
both  HXB  and  TXb.  would  be  regular. 

•  The   sum   of   numerous  entries  scattered   throui^h   the   year. 


APPENDIX  E 

Report  of   the  Committee   on   Uniform  Accounting  for 
Institutions'^ 

The  membership  of  this  committee  was  intended  to  in- 
clude representatives  of  various  types  of  institutions  and 
various  aspects  of  institutional  work.  The  committee  has 
had  a  progressive  rather  than  a  constant  life,  for  the  mem- 
bership has  been  enlarged  as  various  phases  of  the  work 
were  attempted  and  advice  upon  them  became  necessary. 
Besides  the  chairman,  the  following,  in  the  order  of  ser- 
vice, have  had  a  part  in  the  work  of  the  committee :  Miss 
Olive  Davis,  director  of  halls  of  residence,  Wellesley  Col- 
lege; Dr.  Frederic  A,  Washburn,  superintendent  of 
the  Massachusetts  General  Hospital,  Boston;  Dr.  Roland 
H.  Harris,  member  of  the  board  of  trustees  of  the  Battle 
Creek  Sanitarium;  Mr.  John  L.  Taylor,  assistant  comp- 
troller of  Harvard  University,  and  treasurer  of  the 
Symmes  (Arlington,  Mass.)  Hospital;  Miss  Florence  Ruth 
Corbett,  dietitian  at  Teachers  College,  Columbia  Univer- 
sity, and  consulting  dietitian  for  institutions;  Mr.  Edgar 
A.  Fisher,  purchasing  agent  of  Earlham  College. 

This  gives  the  committee,  counting  some  members  in 
more  than  one  capacity  when  their  work  has  had  more  than 
one  aspect  for  the  purposes  of  the  committee,  four  repre- 
sentatives of  hospitals,  one  representative  of  a  sanitarium, 
four  representatives  of  the  food-and-shelter  aspect  of  col- 
leges, three  representatives  of  the  teaching  aspect  of  col- 
leges, and  two  accountants.     Mr.   Melvil  Dewey,   of  the 

*  Presented  at  the  Lake  Placid  Meeting  of  the  Administration  Section  of  t';e 
American  Home  Economics  Association,  June,  1912;  published  in  The  Journal  of 
Home  Economics:  Home,  Institution,   School,   December,    19 12. 

236 


APPENDIX   E  237 

Lake  Placid  Club,  has  given  the  committee  much  help,  par- 
ticularly in  the  consideration  of  problems  of  clubs  and 
hostelries. 

A  complete  plan  for  uniform  accounting  would  require 
a  large  volume  for  exposition  and  illustration.  So  many 
differences  occur  in  institutions  that  doubtless  fifty  modifi- 
cations of  any  uniform  plan  would  be  required  even  for  the 
institutions  represented  in  this  conference.  Uniformity  of 
detail  is  not  really  uniformity  at  all,  for  details  must  dififer 
where  conditions  differ;  otherwise  one  cannot  know  that 
conditions  are  different,  and  the  accounts  will  misrepresent 
the  facts.  What  we  mean  by  uniformity  is  uniformity  of 
method — so  that  the  same  situation  will  be  disclosed  by  the 
same  figures,  and  differences  of  situation  will  be  disclosed 
by  differences — and  concomitant  differences — of  figures. 

For  these  reasons  your  committee  has  thought  wise  to 
recommend  the  adoption  of  certain  principles  that  it  believes 
essential  to  any  sound  accounting — whether  for  immediate 
costs,  for  studies  of  efficiency,  or  for  purposes  of  compari- 
son either  within  an  institution  or  between  institutions. 

These  principles  may  be  stated  concisely,  as  follows : 

I.  Capital  accounts,  so-called,  should  be  kept  for  all 
permanent  property  and  equipment — and  that  means  a  cap- 
ital account  for  each  department  of  the  institution.  The 
purpose  of  these  accounts  is  to  show  not  what  the  prop- 
erty is  worth  to-day  for  sale  purposes,  but  what  it  repre- 
sents in  the  way  of  cost,  or  investment,  for  the  institution. 
These  accounts  indicate  how  much  of  the  funds  entrusted 
to  the  institution  have  been,  and  are  now,  locked  up  in  per- 
manent form.  It  is  assumed  that  either  the  property  has 
been  maintained  at  its  original  efficiency,  or  depreciation 
has  been  subtracted  from  the  original  cost  and  charged  as 
operating  cost,  or  expense. 

If  in  any  institution  the  records  of  cost  of  permanent 


238  COST  ACCOUNTING  FOR   INSTITUTIONS 

equipment  have  not  been  preserved,  a  fair  valuation  of  the 
property  for  use  purposes  (not  for  sale  purposes  unless 
early  sale  is  contemplated)  should  be  made.  This  valua- 
tion should  have  regard  to  three  things — the  cost  of  new 
equipment  to  do  the  same  or  substitute  work,  the  probable 
life  (or  period  of  usefulness)  of  the  old  equipment,  and 
the  comparative  efficiency  of  the  new  and  the  old.  The 
important  fact  is  to  recognize  the  principle  of  valuation, 
for  several  things  hinge  upon  it — as  will  appear  in  the  dis- 
cussion of  other  accounts. 

The  only  objection  to  this  plan  is  the  fear  that  jealous 
citizens  may  agitate  for  taxation  of  tax-exempt  institu- 
tions, or  philanthropically  minded  persons  may  grow  tight- 
fisted  if  they  learn  how  much  property  institutions  hold. 
The  committee  believes  that  even  under  such  circumstances 
the  figures  should  be  kept  on  the  books,  but  it  may  not  be 
wisdom  to  publish  them.  On  the  other  hand,  a  campaign 
of  education  may  sometimes  be  profitably  conducted  by 
showing  how  big  an  investment  is  necessary  to  make  pos- 
sible the  conduct  of  a  proper  public  service.  Greater  con- 
tributions may  result. 

Directly  related  to  these  capital  accounts  are  four,  some- 
times five,  operating  or  expense  accounts,  and  these  should 
be  kept  separate  for  each  department.  These  give  us  the 
following : 

2.  A  maintenance  account  should  be  kept  for  each  de- 
partment. This  should  show  all  expenditures  for  repairs 
and  replacements  to  keep  the  property  in  its  original  effi- 
ciency for  service.  The  sum  of  these  is  an  operating  cost. 
If  the  property  has  been  more  than  maintained,  so  that  it 
has  greater  efficiency  or  longer  life  than  before,  the  cost  of 
the  excess  of  service-value  may  be  charged  to  the  capital 
account  of  the  department. 

If,  on  the  other  hand,  repairs  and  replacements  have 


APPENDIX   E  239 

not  kept  the  property  up  to  its  old  efficiency,  this  exhaus- 
tion of  value  is  still  one  of  the  operating  costs,  or  expenses, 
and  must  be  counted.  So  far  as  cost,  or  expense,  is  con- 
cerned, it  makes  no  difference  whether  one  has  replaced  the 
wear  and  tear  or  not.  The  cost  is  the  wear  and  tear  itself. 
For  convenience,  we  call  the  cost  of  restored  wear  and  tear 
"maintenance,"  and  actual  (not  restored)  wear  and  tear 
we  call  "depreciation."  A  valuation,  as  already  indicated 
for  the  capital  account,  assists  in  the  annual  answer  to  the 
question,  Has  the  property  been  maintained  ?  This  is  to  be 
determined  for  a  department  as  a  whole,  and  not  for  each 
item  of  property — table  leg,  or  sheet,  or  instrument.  If  the 
property  and  equipment  of  the  department  as  a  whole  are 
as  efficient  (looking  into  the  future,  i.  e.,  at  durability,  as 
well  as  at  the  present)  as  they  were  at  the  beginning  of  the 
period  for  which  the  books  were  made  up,  the  property  has 
been  maintained  and  no  depreciation  need  be  considered. 
The  cost  of  that  maintenance  is  the  charge  to  maintenance 
account.  If,  for  an  absurd  but  simple  example,  a  building 
were  so  constructed  that  one-tenth  of  the  cost  were  in  the 
roof,  one-tenth  in  each  of  three  floors,  one-tenth  in  each  of 
four  walls,  etc.,  and  it  were  good  for  ten  years  only,  and 
you  replaced  the  roof  one  year  (though  the  rest  depre- 
ciated), and  a  floor  another  year  (though  the  rest  depre- 
ciated), and  so  on.  there  would  be  no  actual  depreciation. 
You  might  go  on  in  this  way  for  a  thousand  years,  always 
with  a  building  as  good  as  it  was  at  the  end  of  the  tenth 
year,  with  correct  showing  of  values  and  of  costs;  for 
though  each  year  nine-tenths  were  allowed  to  depreciate, 
the  tenth-tenth  would  be  entirely  replaced  and  charged  to 
maintenance ;  and  that  would  be  as  good,  and  indeed  prac- 
tically far  better,  than  replacing  one-tenth  of  the  walls  and 
of  the  floors  and  of  the  roof  each  year. 

3.     A  depreciation  account  should  be  kept  for  each  de- 


340  COST  ACCOUNTING  FOR   INSTITUTIONS 

partment ;  for,  as  just  indicated,  when  depreciation  has  oc- 
curred, it  must  be  counted  as  a  cost;  otherwise  a  superin- 
tendent or  manager  who  exhausts  the  equipment  will  be 
showing  low  costs.  Depreciation  must  also  be  deducted 
from  the  capital  value  of  the  property. 

4.  An  interest  account  is  desirable  for  each  depart- 
ment. Each  department  should  be  charged  interest  on  its 
equipment.  This  sounds  like  paying  the  left  pocket  from 
the  right — like  playing  with  figures.  Yet  only  so  can  we 
know  whether  equipment  is  profitable.  Expensive  equip- 
ment may  be  put  in  to  save  labor ;  but  no  institution  has  a 
plethora  of  funds,  and  money  spent  for  permanent  equip- 
ment cannot  be  used  for  current  accomplishment.  If  de- 
partments are  not  charged  interest  on  their  equipment,  they 
are  left  with  temptation  to  save  a  dollar  in  wages  at  the 
expense  of  two  dollars  in  interest — for  wages  always  show 
and  the  interest  (in  that  case)  will  be  hidden.  Even  if 
money  is  plentiful,  neglect  to  charge  interest  will  represent 
conditions  unfairly  in  a  comparison  with  other  institutions 
unless  actually  the  same  proportional  investment  has  been 
made  in  the  various  departments. 

Obviously  a  valuation,  as  suggested  for  the  capital  ac- 
count, is  necessary  for  the  calculation  of  interest  on  equip- 
ment. The  rate  of  interest  must  be  determined  by  local 
conditions.  For  our  purposes,  the  important  things  are 
merely  two :  first,  the  recognition  of  the  principle  of  in- 
terest as  a  department  cost;  second,  a  statement,  in  the 
published  report,  of  the  amount  of  interest  charged  to  each 
department  and  of  the  rate  used. 

5,  Departments  should  be  charged  for  insurance  on 
their  property  for  the  same  reason  that  they  should  be 
charged  interest.  The  use  of  property  involves  the  cost  of 
insuring  that  property,  and  a  department  unwilling  to  bear 
the  expense  should  not  be  granted  the  right  to  purchase. 


APPENDIX    E 


241 


6.  If  taxes  are  paid,  they  should  be  charged  to  depart- 
ments in  the  ratio  of  the  value  of  the  property  held. 

Obviously  only  when  valuations  of  property  are  pre- 
served on  the  books  can  one  apportion  insurance  and  taxes 
to  the  various  departments. 

So  far  we  have  been  concerned  only  with  direct  costs — 
costs  for  which  we  know,  or  can  easily  tell,  how  much  be- 
longs to  each  department.  Besides  those  just  considered 
are  the  obvious  items  of  salaries,  supplies,  express,  station- 
ery, printing,  etc. 

Your  committee  recommends  that  at  least  four  joint 
costs — or  costs  common  to  several  departments — be  dis- 
tributed among  the  departments  concerned.    These  follow : 

7.  Food — including  supplies,  cooking,  and  serving — 
should  be  charged  to  departments  separately.  Food  cost 
should  be  distributed  among  the  departments  and  should 
be  charged  to  each  on  such  basis  as  in  each  particular  case 
will  show  the  actual  cost  to  the  institution  of  food  con- 
sumed by  employees  "living  in."  Only  when  this  is  done 
can  one  tell  whether  "living  in"  is  cheaper  than  "living 
out,"  and  only  then  can  one  compare  institutions  operating 
under  different  conditions. 

When  different  types  of  dietary  are  served  to  different 
classes  of  guests,  inmates,  or  students,  the  food  costs  should 
be  kept  separate  for  each. 

8.  The  cost  of  dormitory  or  sleeping  provision  should 
be  determined  for  each  department.  This  should  be 
charged  to  each  department  on  the  basis  of  space  occupied 
and  service  rendered  for  sleeping  accommodations  for  its 
employees.  The  chief  items  so  to  be  distributed  are  rent, 
heat,  light,  laundry,  and  care  of  rooms. 

9.  The  cost  of  laundry  should  be  charged  to  each  de- 
partment.   This  is  meant  to  cover  both  laundry  used  by  the 


242  COST  ACCOUNTING  FOR   INSTITUTIONS 

department  itself,  as  operating-room  laundry  in  a  hospital, 
and  laundry  of  employees  of  the  department. 

10.  Department  housing,  or  space  cost,  should  be 
charged  to  each  department.  This  includes  rent,  light,  heat, 
cleaning,  etc.,  for  the  quarters  used  by  the  department  for 
the  conduct  of  its  business. 

11.  Your  committee  recommends  that  in  some  cases 
two  items  be  subdivided  within  departments,  as  follows: 

(a)  The  subdivision  of  pay-roll  in  some  departments. 
When  several  classes  of  employees,  serving  different  func- 
tions and  receiving  various  rates  of  wages  or  salaries,  are 
employed  in  any  department,  their  salaries  should  be  sub- 
divided in  such  fashion  as  to  make  available  statistical  com- 
parisons or  cost  figures  for  the  different  classes  of  work. 
In  a  hospital,  for  example,  wages  of  graduate  nurses,  of 
nurses  in  training,  and  of  orderlies,  though  all  in  the  group 
of  cost  of  care  of  patients,  should  be  separately  reported. 

(b)  Subdivision  of  supplies  in  certain  departments. 
These  should  be  divided  into  classes  whenever  such  sub- 
division will  give  statistical  information  of  value.  Such 
information  is  the  relative  consumption  of  meat,  of  fish, 
of  dairy  products,  of  cereals,  etc.,  under  different  condi- 
tions, and  the  cost  of  dietetic  substitutes  for  any  of  these. 

The  above  recommendations  are  made  by  unanimous 
vote  of  the  members  of  the  committee  present  at  this  con- 
ference. Dr.  Washburn,*  who  was  unable  to  be  here,  has 
expressed  personally  to  the  chairman  his  approval  of  the 
principles  involved;  but  he  has  not  had  opportunity  to  see 
them  expressed  in  this  form.  Miss  Davis*  has  been  abroad 
for  some  time,  and  has  not  seen  this  formulation,  but  has 
expressed  her  approval  of  most,  if  not  all,  of  the  principles. 
Respectfully  submitted,  for  the  Committee, 

William  Morse  Cole,  Chairman. 

*  Since  the    meeting,    both    Dr.    Washburn    and    Miss    Davis   have    given   the 
report  their   full  endorsement. 


INDEX 


Additions  to  property,  105 
Administration  —  distribution      of 
"costs  of,  186 
equipment  for,  19 
expenses  of,  70-73 
Advertising,  96 

Alphabetical    index — ^hospital    ex- 
penses, 21 1-2 16 
symbols   for    hospital   accounts, 

197-206 
symbols  for  accounts  of  institu- 
tions not  hospitals,  206-210 
Ambulance  service,  25,  76 
Annual  report,  86,  87 
Apparatus — astronomical,  39 

surgical,  19,  74 
Asset  statements,  24 
Astronomical  apparatus,  39 
Automobiles,  40 

B 

Bakers,  79 

Balance    sheet  —  arrangement    of, 
26-27 

illustrative,  28-29 

publication  of,  17,  238 

purpose  of,  16 
Bar,  41,  96 
Baths,  41,  94 
Bedding,  25,  80 
Billiard  rooms,  40,  95 
Board — bookkeeping    entries     for, 
181-184 

employees',    129,    132-135,    156, 
157,  160,  241 

Seneral,  71-86  passim 


Board — patients',  56,  85,  156,  160, 
192 

transfer  account,  84,  1 81-184 
Boats,  40,  95 

Bookkeeping  entries  for — adminis- 
trative expenses,  186 

board  costs,  1 81-184 

closing,  187-189,  194 

depreciation,  170-175 

engineer's  services,  175-177 

hospital  complete,  220-235 

household  costs,  180 

ice,  170 

interest  charges,  174 

inventories,  182-184 

laundry  costs,  180 

power,  177 

professional  services,  184 

rent  charges,  175 

space-costs,  178-179 

temporary  depreciation,  172-174 
Bookkeeping  methods,  9,  loi 
Books,  38,  39,  74 
Bowling  alleys,  40,  95 
Bread,  77 

Breakfast  foods,  78 
Buildings,  23,  82,  179,  235 
Burden,  7 
Butter,  78 


Calculation    of    food    costs — occa- 
sional common,  148 

regular  common,  153 

special,  144 
Canoes,  40 


243 


244 


INDEX 


Capital  accounts — alphabetical  in- 
dex of  symbols  of  (with  expense 
accounts),  for  hospitals,   197- 
206 
for  other  institutions,  206- 
210 

classified,  19-26,  36-41 

general  discussion  of,  16,  237 
Capital  assets,  statement  of,  28 
Capital  gains,  49,  52 
Capital  liabilities,  statement  of,  29 
Capital  losses,  50,  52,  53 
Card  rooms,  40   95 
Carriages,  40 
Cartage,  71,  95 
Cereals,  table,  78 
Charts,  38,  39 
Cheese,  78 
Cigar  stand,  40,  96 
Cleaning  cost,  distribution  of,  100 
Closing  entries — general,  170-196 

skeleton,  187-189,  223-225 
Coffee,  79 
Committee  on  uniform  accounting, 

236-242 
Confectionery,  79 

Contributions,  44,  47,  51,  52,  56,  61 
Corporation  expenses,  48,  51 
Cost  accounting — aims  of,  i 

methods  of,  5-8 
Cost  units,  97 
Cream,  78 

Current  assets,  statement  of,  28 
Current  liabilities,  statement  of,  29 

D 

Death  record,  126 
Departmental  income,  57 
Depreciation — ^bookkeeping  entries 
for,  170-175 
general,   46,    51,    72-82    passim, 

104,  170,  239 
of  buildings,  82,  179,  235 


Depreciation — of    machinery,    82, 
178 

of  plumbing,  235 

temporary,  172-174,  234 
Dietary  summaries,  141-144 
Dining  room  service.  80,  89 
Direct  charges,  5 
Discharge  record,  126 
Dispensary,  20,  75 
Distribution  of  indirect  costs — ad- 
ministrative, 186 

engineer's  time,  161-163,  175-177 

food,  159-160,  181-184,  241 

general,  7-12,  102 

housekeeping,  180 

laundry,  180 

professional,  184 

space,  166-168,  178-179,  241. 242 
Divisional  income,  58,  234 

E 

Earnings — departmental,  57,  58 
divisional,  58,  234 
general,  43,  46,  51,  55-58 

Economy  of  operations,  2,  5 

Eggs,  78 

Emergency  ward,  20,  75 

Employees'    board,    129,    132-135, 
156,  157,  160,  241 

Endowment  income,  43,  47,  51,  52 

Engineer — compensation  of,  83 
distribution  of  time  of,  161-163, 

175-177 
Entertainments,  94 
Entry  book,  116 
Equipment — ^for  nurses,  74 

(see  also  under  departments) 
Expense  accounts — alphabetical  in- 
dex of  symbols  of  (with  capital 
accounts),  for  hospitals,  197-206 
for  other  institutions,   206- 
210 
classification  of,  64-66 


INDEX 


245 


Expense  accounts — closing  subsid- 
iary, 185,  187 

for  educational  institutions,  90-93 

for  hospitals,  74-86 

for  other  institutions,  94-96 
Expense  burden,  7 
Expense  ledger,  108-113,  228-232 
Expenses — alphabetical    index    of, 
for  hospitals,  21 1-2 16 

classification  of,  88 

report  of,  87 
Expense  summary,  189-194 
Express,  71-84  passim,  103 


Fair  greens,  41 

Fees  earned,  56 

Fish,  78 

Flour,  77 

Food — calculation  of  cost  of,   144, 
148,  153,  156 
distribution   of  cost  of,    11,   99, 

159-160,  181-184,  241 
inventories  of,  153,  182-184 
per  capita  cost  of,  155 
requisitions  for,  136-140 
statistics  of  cost  of,  13,  155 
summaries  of  cost  of.   146,   150 

154-157 
Forms  for  costs,  list  of,  113 
Freight,  see  Express 
Fruit  juices,  78 
Fruits,  78 

Fuel,  79,  81,  82,  177 
Funds,  31,  171 
Furniture,  27,  80 

G 

Gain — capital,  49,  52 

(see  also  Earnings,  and  Income) 
Garage,  40,  95 
Garden,  vegetable,  3,  161 


Gas,  82,  179 

Golf,  41,  94 

Greens,  golf,  41 

Groceries,  79 

Grounds — care  of,  82,  178 

investment  in,  23 
Gymnasium,  40,  93 

H 

Halls,  public,  93 

Harnesses,  40 

Hazards,  41 

Heating,  distribution  of,  lOO 

Home  nursing,  24,  75 

Honey,  79 

Horses,  40,  95 

Hospitality,  96 

Household  department,  14,  21,  80, 

180 
House  miscellaneous  expenses,  84, 

178 
House  tables  record,  157 
Housing,  5,  71-86  passim,  99,  176 

I 

Ice,  74,  79,  82,  168,  170,  178 
Ice  cream,  78 
Improvements  on  land,  23 
Income — defined,  46 
endowment,  43 
ledger  for,  62 
normal  current,  47,  51 
other,  59 

statement  of,  43-62 
Index,    alphabetical — hospital    ex- 
penses, 21 1-2 16 
symbols    of    hospital    accounts, 

197-206 
symbols  of  other  accounts,  206- 
210 
Indirect  costs,  7-12,  102 

(see  also  Distribution  of  indirect 
costs) 


246 


INDEX 


Instruction — correspondence,  37,  91 
hospital  training  school,  20,  76 
oral,  37,  90 
university  extension,  37,  91 

Instruments,  surgical,  19,  74 

Insurance,  72-83  passim,  96,   179 
240 

Interest — bookkeeping  entries  for 

174 
earned,  59 

on  buildings,  84,  179 
on  equipment,  47,  51,  72-86  pas- 
sim, 84,  103,  178  240 
on  land,  96,  175 
Inventories  of  food,  153,  182-184 
Investments — charges  against,  27 
statement  of,  26,  27 


Joint  costs,  7 

K 

Kitchen    department — distribution 
of  costs  of,  159,  181,  241 
equipment  for,  22 
expenses  of,  79 


Laboratories,  37,  91 
Land — interest  on,  96,  175 

valuation  of,  23,  170 
Lantern  slides,  38 
Launches,  40 

Laundry  costs — charges  for,  71-86 
passim  (see  also  Laundry  de- 
partment) 

distribution  of,  180,  241 

statistics  of,  181  note 
Laundry  department,  22,  81,  177, 

179  note 
Ledger — expense,  108-113 

expense,  skeleton,  228-232 

general,  skeleton,  226-227 


Legacies,  44,  47,  5i,  52,  61 
Legal  expenses,  72,  86 
Libraries,  37,  38,  91 
Lighting,  82,  100,  179 
Linen,  25,  80 
Loss— capital,  50,  52,  53 

(see  also  Expenses,  and  Deprecia- 
tion) 

M 

Machinery,  23,  82,  178 
Maintenance — funds  for,  171 

general,  72-83  passim,  105,  238 

of  buildings,  82,  179,  235 

of  machinery,  82,  178 

of  plumbing,  83,  179 
Maps,  38,  39 

Meal  requisitions,  136-140 
Meats,  78 

Medical  supplies,  74 
Milk,  78 
Molasses,  79 
Museums,  38,  92 
Musical  records,  38 
Musical  rolls,  38 
Musical  scores,  38 

N 

Nets,  tennis,  41 
Newspapers,  38,  74,  214 
News  stands,  40,  96 
New  York   Plan   of   Hospital  Ac- 
counting, 89,  217 
Nurses — equipment  for,  74 

graduate  resident,  73 

in  training,  73 

superintending,  73 
Nuts,  78 

O 

Observatories,  38,  39,  93 
Occasional  common  food  costs,  148- 
153 


INDEX 


247 


Office  expenses,  71 
Oils — culinary,  78 

lubricating,  82 
Open-stock  inventories,    153,    182- 

184 
Open-stock  reouisition,  139 
Orderlies,  73 
Organs,  39 
Overhead  costs,  7 


Pamphlets,  38 

Pastry,  77 

Pathological  laboratory,  24,  76 

Patient  report — annual,  124,  131 

daily,  118 

monthly,  121,  129 
Pay  roll,  129,  132-135 
Per-capita  costs,  8,  loi,  155-157 
Periodicals,  38,  74,  214 
Photographic  apparatus,  39 
Photographs,  38 
Physicians,  73 
Pianos,  39 
Plumbing — cost  of,  26 

depreciation  of,  235 

maintenance  of,  83,  179 
Postage,  72,  86,  91  n 

Poultry,  78 
Power — general,  82,  179 

sterilizing,  74 

transfer  account,  85,  177 
Preserves,  78 
Prices,  fixing,  i 
Primary  accounts,  7 
Prints,  38 
Products,  14 
Professional  services,   73,  85,    105, 

184 
Prop)erties,  theatrical,  40 
Property,  statement  of,  26 
Property  accounts,  symbols  of,  34, 
37-41 


Publications,  96 
Publicity  expense,  96 
Putting  greens,  41 


Registry  book,  116 

Regular  common  food  costs,   153- 

154 

Renewals,  see  Maintenance 
Rent,  82,  175,  178 
Repairs,  see  Maintenance 
Replacements,  see  Maintenance 
Requisitions,  136-140 
Rooms,  71-86  passim 


Salaries,  70-86  passim 

Scenery,  39 

Secondary  accounts,  64,  65 

Service  costs,  distribution  of,  1 1 

Sites,  23,  96,  170,  175 

Space  costs — basis  for,  164-165 

cubic,  84 

definition  of,  10 

distribution  of,  10,  166-168,  178- 
179,  241,  242 

floor,  84 
Special  food  costs,  144-148 
Special  funds,  schedules  of,  31 
Stable,  95 

State  appropriation,  45 
Stationery,  71,  86 
Statistics — compiled,    1 16-168  pas- 
sim 

in  accounting,  13 
Steam,  74,  79,  81,  82,  177 
Steam-fitting,  26,  83,  235 
Sterilization,  74,  177 
Steward's  department,  22,  77-79 
Stimulants,  74 


248 


INDEX 


Store-room  record,  li 

Subdivision  of  accounts,  12,  242 

Subscriptions,  44,  51,  60 

Sugar,  79 

Supplies,  72-82  passim 

Surgical  instruments,  19,  74 

Surgical  supplies,  74 

Swimming  pools,  41 

Symbols — alphabetical   indexes  of, 
197-206,  206-210 
for  capital  accounts,  35,  37-41 
for     expense     accounts,     70-86, 

90-96 
principle  of  choice  of,  33,  66-69 

Syrup,  79 


Transactions  for  the  year,   state- 
ment of,  48-55 
Transfers,  106 

U 

Uniformity  of  accounts — need   of, 
4,  15.  236 
report  of  committee  on,  236-242 
Uniforms,  74 
Unit  of  cost,  97,  191 


Valuation  of  property,   16,  23,  24. 

170,  238 
Vegetables,  3,  78,  161 
Volume  of  business,  59 


Taxes,  81,  179,  241 

Tea,  79 

Telephone  and  telegraph,  24,  72 

Temporary  depreciation,    172-174, 

234 
Tennis,  40,  94 
Time  sheets,  129,  132-135 
Tools,  see  Machinery 
Training  school,  20,  76 


W 
Wagons,  40 
Ward  employees,  73 
Ward  record,  119 
Waste,  82 

Water,  82,  177,  178,  179  not*. 
Work  done,  14 


X-Ray  department,  20,  76 


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